Members of many universities (including Sydney and Macquarie) have argued that the recent changes in Ethereum’s monetary policy makes it a more valuable store of value than Bitcoin. This is due to the deflationary effects that EIP-1559 has had on the issuance.
Ethereum at the Spotlight
A paper published by Australian university students last month focuses on Ethereum’s future potential as a value store. The paper, titled “Better than Bitcoin? Can cryptocurrencies beat inflation?,” is authored by Ester Félez-Viñas of the University of Technology in Sydney and other academics, and compares the issuance of Bitcoin with the new issuance model of Ethereum, that is making the currency deflationary.
It states that:
After the change in the protocol for transactions, we show that the net issuance of Ethereum tokens is now significantly lower than Bitcoin. It was possible because the fees were eliminated.
Every transaction comes with a fee.
It has to do the activation EIP-1559 which proposes to burn Ethereum proportionally to its usage. While this proposal had some opposition when it was presented — mainly from miners and mining pools — it is now contributing to this new appreciation of Ethereum as a possibly deflationary currency in the future.
The Cost of Burning Fuel
EIP-1559 was implemented, which has led to significant Ethereum fees being burned. In just three months after its introduction on the mainnet, this change led to over one million ETH being taken from circulation. The study concludes that this is the case.
In many cases the amount of Ethereum burned outpaces the network’s creation of new tokens, resulting in Ethereum potentially becoming the world’s first deflationary currency. Our argument is that Ether has better inflationary hedging capabilities than Bitcoin. This may make it a more attractive long-term asset storage alternative to Bitcoin.
In an effort to duplicate the result, other cryptocurrency projects have adopted similar fee burning strategies. Recent updates to Binance’s network included fee-burning. Binance coin is fundamentally different from Ethereum. Ethereum has no limit on the amount of its issuance while Binance coins does have a hard cap.
What do you think about the “Better than Bitcoin? Can cryptocurrencies beat inflation?” paper and its conclusions? Let us know your thoughts in the comment section.
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