It is no secret that Ethereum gas fees have been going through the roof lately, making it very difficult for smaller ETH hodlers to capitalize on Defi yield farming. Record gas fees have crippled the network, in some cases leading to people missing out on buying into IDO's while still paying $100s of dollars in gas fees.
Why is this happening?
The current ETH mining structure uses a bidding system that allows miners to prioritize the highest bids. This causes lower transaction fee orders to get 'stuck on the books' for days or weeks, making the network unappealing to lower capital investors.
Enter the EIP1559 Proposal
The EIP1559 proposal has now been approved and is scheduled to be implemented in July 2021. This update to the Ethereum network will lower gas fees by adjusting them so users only pay the lowest bid for each block. The EIP1559 update also has the potential to shift ETH from an inflationary asset to a deflationary one by burning a small percentage of each network transaction fee.
Additionally, the base network fee will now be “burned” on each transaction, potentially leading to deflationary tokeneconomics for ETH. An analysis of network transactions last year found that EIP-1559 would have burned 1 million Ether over the course of 365 days — almost 1% of the network.
Source: cointelegraph
This is great news for everyone... apart from perhaps the miners, who are already complaining about how this will effect their revenue and making noises about a possible hard fork.
I personally think that this is a selfish, short term attitude that disregards the stagnating effect on price that ETH's inflationary model is causing. I know that ETH price has risen considerable in USD value since late last year, but when we consider ETH's utility, and its 2nd place in the crypto markets, I don't think we're even scratching the surface of what Ethereum can achieve. If we consider Eth's price from the breakout of the last all time high, it paints a different picture as it hasn't performed half as well as bitcoin in that regard. These issues of gas prices are holding Ethereum back!
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I understand why miners are complaining though, as they have monthly costs to pay in fiat to keep their operations going. In a lot of cases they are working within tight margins meaning they might make considerably less profits in the short term keeping their rigs active. But the miner's focus on short term gains will hold back Ethereum's long term prospects if allowed to continue unchecked.
Major financial entities are not going to build on Ethereum until the network becomes more attractive both in potential ETH price rises, and usability of the network. This proposal addresses both of these problems, paving the way for ETH to really take off in this bull market.
Miners will benefit in the long run too from the ETH price rise it will cause.
The End of the Binance (BSC) Defi Gold Rush?
The first quarter of 2021 has seen an astronomical rise in the price of Binance Coin (BNB) largely due to Binance smart chain offering a cheaper Defi solution to the Ethereum network. But this could be set to change with the implementation of Ethereum's EIP1559 Proposal.
It's undeniable that the adoption and use of Binance smart chain has happened at the expense of the Ethereum network. Binance offers a solution for entering the Defi space without having to pay astronomical gas fees, however, this comes with the caveat of accepting the risks of a centralized network.
We all know those dangers here on hive. The CEO of Binance was instrumental in helping Justin Sun implement the first wave of the network attack against steem in his hostile take over. CZ allowed the use of other people's funds (steem holdings) on his exchange to vote in sock puppet witnesses for Justin Sun's Tronit take over.
This is all ancient history in the fast moving world of blockchain, but it proves my point above. Binance is a centralized option. The point of failure comes down to one man, with a questionable history. The Ethereum network is decentralized, there are many points of failure against any attempt at centralized actions. This is the main reason why I think most people will flood back to Ethereum once the gas crisis has been solved.
Some other reasons include:
Ethereum is the first market mover on smart contracts - it can still claim the title of best, most adopted, decentralized smart contract blockchain.
Ethereum is already a known entity in the financial sector - the inclusion of Ethereum in futures contract trading with the CME Group cemented it's place as the worlds 2nd most well know cryptocurrency.
Most projects still choose to build on Ethereum despite the problems with gas fees - serious projects recognize the truth that decentralization is the core USP of the blockchain space.
I have nothing against BSC as a short term solution, I am going to participate in liquidity mining with bLeo and the CUB tokens that are being airdropped by @leofinance to all Leo holders. But long term, if the ETH EIP1559 proposal does reduce gas fees to affordable levels, I will switch those tokens to ETH wrapped Leo and move them to a decentralized protocol. I think that many people might feel the same.
In the short term I think that Ethereum will see a massive pump from this news in the run up to July and EIP1559. During that time there is no reason why the use of Binance smart chain tokens would decrease as they're still providing a cheaper alternative to current ETH gas fees. But in the weeks leading up to, and after, EIP1559 is implemented I think we could see a massive drop off in the price of BNB and the tokens associated with Binance smart chain. In the coming months I will be positioning myself based upon these theories.
What will you be doing in the run up to July?
Let me know in the comments below.
Thanks for reading 🙂
Nothing in the this post constitutes financial advice. These are my opinions and all investments should be researched and entered into at your own risk.
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I think even with a drop in fees the BNB cat is out of the bag and Binance has enough cash to keep it going and pushing it on people!
We also don’t know with lower fees how much more through put ETH can take so I think BSC will keep going until ETH reallt solves the problem of scalability for good
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Hi chekohler
I agree that BNB/BSC is well established now and isn't really going anywhere, but I think that the question is more a case of if these price rises we've seen with BNB will continue if ETH solves the gas issues. I don't think it will at all.
There are three scenarios I can see:
Absolutely agree with this, and I guess we wont know for sure until July or after.
Thanks for reading 🙂
I think they will coexist for the long run. People in BSC will keep them in there for most, due to the cost that it is involved. Also it offered them stability and why change a running system?
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There is only one reason, BSC is a centralized system. But I know what you're saying, a lot of people don't really care about that type of stuff as long as they're making money. The only thing is that centralized systems are much more susceptible to attack, if people start losing their money due to hacks on BSC they'll soon want to jump ship.
But I do agree that BSC ain't going anywhere, I just wonder if the massive rise in price of BNB seen and a lot of the BSC tokens might take a hefty hit after July if eip1559 reduces gas fees considerably.
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Let's see by how much the fees will go down. I think a massive drop is needed, else there will be no change. And if they are still higher than on BSC, it will be no change.
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I think we'll probably need ETH 2.0 to see a real difference, but that will be a game changer.
The smart move could be to work BSC for a while and use that to stack a bit more ETH. I wouldn't want to suggest a time to get out of BSC though.
Hmnnn, that is an interesting alternative strategy. Once I've got some bLeo wrapped up in a pool I think there's a chance I might start thinking differently as cashing them out and into ETH wLeo probably end up costing me a lot just to do the two transactions.
I'm not someone who is heavily invested in Defi liquidity pools, so it doesn't really effect me that much to sell all my BNB and/or BSC tokens because I don't have a tone. I imagine it would be a much harder decision if I was making bank each day from yield farming on BSC.
Definitely need to assess things again closer to the time.
Also, yes 100% to this.
I remember reading stories saying ETH 2.0 was coming like a year ago 😂 Looking at my watch ETH devs and community.
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If anything I hold pumps 10 times I'll certainly put some of that into ETH, as long as the price stays around what it is now. Once those 2.0 rumours become imminent it's probably going up!
First we need to see how it goes with EIP-1559. If it doesn’t gets any better than BSC I don’t see the incentive.
I would like to use Ethereum instead BSC but at current levels, is not practical. I think the problem will be solved by ETH 2.0 and PoS, this is just a patch.
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I agree with that sentiment for sure. POS ETH 2.0 is the full solution to this issue. I remember they were saying it was coming like a year ago 😂
We're not gonna know for sure the full effect on gas fees until the EIP-1559 update has been running a month or two at least. I was just doing the old crystal ball thing with my short term predictions at the end of this post 😉
I feel it is a sound strategy for me to hedge against the possibility of ETH taking back a large portion of BSC users, even if it doesn't. I'm not someone who is heavily invested in Defi liquidity pools, so it doesn't really effect me that much to sell all my BNB and/or BSC tokens because I don't have a tone. I imagine it would be a much harder decision if I was making bank each day from yield farming on BSC.
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It is high time for ETH to address the GAS fee issue. In a Dynamic Market like crypto and given that the masses haven’t arrived yet, first move advantage is not a given. Decentralization as a concept still has to show its ability to work under economic pressure.
Thank you for this very well written article !BEER
Absolutely agree. It is no where near as much an advantage as it would be for a traditional business/enterprise. I also agree that ETH is well overdue to address the gas issue. It seems to me that ETH has dodged a bullet somewhat because of the nature of blockchain and that many people in the space value decentralization above all else. Even though Bitcoin has been around 10 years, I think blockchain as a technology and utility is very much still in its beginning phases.
P.s. cheers for the beer ;-)
That has reminded me that it's Saturday evening and I need to walk to my local shop to buy a 6 pack :)
Feet up time.
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Sounds like a plan for Saturday Night 😉
We will see if decentralization can withstand massadoption
Assuming there aren't delays rolling those changes out with ETH of course but I don't have that much Ethereum. Going to keep some bnb and ETH handy for these DeFi thingys though - gonna need a tutorial for that I reckon!
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Ha ha, and that is the big IF for sure. There have been plenty of delays in the past lol
I'll probably make some type of tutorial as I work out how to use the bLeo liquidity pool. Gonna have to buy more BNB and Leo first tho. That will be my first venture into defi yield farming.
Haven't you already taken the leap into the Defi thing with ETH wLeo m8?
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No I never ventured into wleo either but now I'm tempted to do that too... Mmm options! I'll be taking a leap for sure. Have you dived in?
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No mate, this will be my first time messing around with wrapped tokens.
Once the CUB airdrop happens and we learn how the Defi bLeo pools work I'm going to take my first steps into Defi Yield farming by joining that pool. Seems like a good idea to me as it will probably be the cheapest option and I'm only going to have 400-500 bLeo to play with.
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Actually just watched a video by coin bureau about how you can use metamask to tap into DeFi and binance smart chain so will be keeping that handy on top of any tutorials from the Leo team. I have some bnb ready and also got some ETH to dabble with the wleo but we'll see, may just stick to bnb for the cheaper fees
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I know that etherum will not stand idly by about the progression of Binance
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Good point.
And that is another reason why I think the miners need to suck it up in the short term, with their block rewards maybe reducing when eip1559 happens, because long term, if Ethereum doesn't start to try to compete with BSC the ETH token will lose value.
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Great write up!
There is probably a lot of room for growth for both of the platforms and for more to come :)
Although even with the new EIP I dont think it will reduce ETH fees by much .... PoW is just not scalable.
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Hi Dalz
Yeah, I don't think BNB is going to tank completely, I just think that it will lose some of the market share it has acquired back to ETH. How much exactly... ha ha well that is crystal ball time ;-)
You're probably right, and I guess that we won't know for sure exactly how much the fees are reduced until the update has gone through and at least a month or two has passed to see how the ETH network reacts. Hopefully POS Ethereum 2.0 will follow soon after, I was under the impression that was the end game.
Thanks for checking out my post :)
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I share your opinion and will remain loyal to Ethereum. But at the moment I'm just hodling anyway.
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Yeah, I'm the same, I only hodl Ethereum at the moment because I don't have enough funds to dabble in Defi with the level that ETH gas fees are at right now.
Great post!
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Thanks Eirik.
Appreciate that :)
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Great article. It will definitely be interesting to see the implementation and how much reduction in gas fees we could achieve. People sure trust ETH due to all reasons that you mentioned in the article. But, I doubt Binance Smart Chain will go back to where it was before. It will still be cheap. Not all but few BSC coins will survive And, as we have seen with bLeo, more and more projects are making their products chain agnostic/compatible making things easier for users :)
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That is a good point. I see what you're saying, making a project's token compatible on two chains makes sense as you're giving the project even more chance for success.
I guess my main point about BSC is that ETH sorting out the gas fees could see the end of the BSC gold rush. It might not go down catastrophically, but if ETH gets its act together I think BNB and BSC coins level out their growth curve 😂
I agree with your point. We already are seeing price correction with top BSC defi coins. But, BNB could be a beast that will feed into other waves like BSC NFTs. Let's wait for things to develop.
I think ETH is kind of underestimated right now, and EIP-1559 will do good for ETH.
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Definitely agree on that one. ETH is already starting to pump off the back of the EIP-1559 news :)
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I strongly believe the future of EIP 1559 will be decided on April 1st. Miner revolt can actually gather 51% of hash rate. This is scary for all ETH community. Dev can't just ignore this demonstration of force. They will be forced to see compromise with miners. This is story is just in the beginning.
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Yeah. I saw that news story today on my crypto news app on my phone.
Agree that the miners will probably have a big say, and honestly, I think it's kinda crazy that miners greed can dictate the course of ETH to the point where it is becoming unaffordable for traders and average users. E.g. it costs almost $40 to send USDC and many other ERC20 tokens, but the whole point of stable coins like USDC is to try and strategically retain value pegged to the dollar, but for a more small time trader (like myself) you're often losing a big chunk of your gains simply to move cryptos.
I think that the miners will kick themselves in 2-3 years time if they don't embrace measures to reduce fees as something more scalable will replace ETH eventually if these loopy fees continue, then the value of ETH will tank in that scenario. I guess miners won't care as long as they get max $$$ now, but it seems a shame and I think that POS ETH implementation sooner rather than later is the only thing that will force their hands.
Although, as you point out, perhaps compromise can be reached which at least moves things forward. I know there are 2nd layer solutions etc. But in the case of onboarding the world to crypto more complexities (2nd layer) are the last thing we need. People just want to be able to move money/value cheaply and quickly, with as little complexity as possible, these are the problems crypto was always meant to solve, if cryptocurrencies as a whole can't do these things, it's doomed to fail lol
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