Can ETH Become DEFLATIONARY? EIP 1559 Explained

[@Finematics]

❓What do you think about EIP 1559? Will it have an impact on the ETH price? 👍Hit the like button if you enjoyed this video 🐦Follow Finematics on Twitter ► twitter.com/finematics 💛Support Finematics on Patreon and join our Discord community ► www.patreon.com/finematics

[@phonsina3809]

@@שמואלדישראלי-ב2י popping oo

[@phonsina3809]

Eeeeeeeeeeee

[@ashtongrist]

I hate doodle videos

[@zainy7353]

finally someone who actually puts effort into the videos

[@Finematics]

thanks! :)

[@RanchHandFencing]

Ethereum Classic

[@Fourthesauri]

Great explanation, thx

[@Finematics]

thanks!

[@grildcheez1504]

Wouldn't miners be disincentivized by the cut in mining fees causing them to jump ship? How would EIP-1559 mitigate from that happening?

[@bkkavila8029]

Market forces should take care of that, if miners move on its an opportunity for new investors to come on board as there will be money to be made.

[@andrewjriley2]

@@bkkavila8029 If profitability goes down for miners then there will be less miners.

[@I_Am_Empyrean]

@@bkkavila8029 Nobody's going to jump into a market to make a loss or break even . . . Go watch a video on economics or somethings. @Tiger Fang There is nothing stopping it from happening and nothing stopping a 51% attack in retaliation. Vitalik doesn't give a crap about miners anymore since he's only interested in expanding his own wallet for short-term benefit. That's the real reason behind forcing deflation and the move to POS; to fatten the whales.

[@falxie_]

This is one of the most accessible explanations that I've watched. I think that it's going to have some trouble from miners like myself

[@nukkythompson419]

get a day job and it won't matter

[@tspirit99]

Miners are thieving bastads!

[@matthewlebron142]

I don’t mine personally, I wish I knew how to with all the techno stuff, I just know how to buy some crypto lol but I do know one thing; albeit the general public do make the ethereum network as a whole, miners are the core , they are the ones confirming every transaction. Big shout out to all the miners out there for helping to build the foundation of every useful network there is now 👍🏽

[@1821-p6m]

@@tspirit99 without miners crypto wouldn't work though...

[@joecrofternap]

I am instant fan of this whiteboard format.. keep it up and i will spread to my 10000+ community also..

[@Finematics]

Awesome, thank you! :)

[@D_Ladybug]

Patrick Collins students attendance, mark present here...

[@Cat_Chronicles1]

present

[@TheNewTravel]

tldr: hodl

[@switchbranch8411]

Exactly. Looks as though eth is the new oil

[@racheldelorme6699]

HHOODDDLLLLLLL

[@dreamzsiva]

This channel is a goldmine of DeFi information. As a noob in crypto trading, I find these videos incredibly useful.Thank you for making these.

[@Finematics]

Thanks! :)

[@RanchHandFencing]

Do you mine any Ethereum Classic? ETC just did their Magneto upgrade yesterday.

[@DarisaRohith]

There seems to be a fundamental mistake - EIP 1559 proposal makes it Deflationary, in general. irrespective of whether the following equation you mentioned holds - "Block Reward + Miner Tip < Burnt Base Fee". In simple the total supply is shrinking, because of which there would be shrinking in the total supply of ethereum in general. In a way better to logically consider - "Block Reward < Burnt Base Fee", cause the Miner Tip is actually in Eth circulation.

[@JinKee]

I love your voice. You're like the Two Minute Papers of crypto.

[@MaxPicAxe]

Haha nice observation

[@AaronMartinProfessional]

Hahaha True

[@Bladissey]

If you come from FreeCodeCamp's course video, you're doing great! Keep on learning ;D

[@CorpseCallosum]

ETH so rare its only found on the moon.

[@Finematics]

🚀🚀🚀

[@Diego-gc4lo]

Why does the base fee need to be larger than the block reward AND the tip to make ether deflationary? Wouldn't it just need to be larger than the block reward? I'm no expert, but from what I understood the miner fee is paid by the user making the transaction which means the ether supply isn't increasing.

[@jacksondawg4364]

I agree. Well done video though 👍🏽

[@codyswartz997]

First off I have to say this is the best explanation of EIP 1559. However as a miner this concerns me. This seems like it will be a 50% reduction in profits. Also if price drops enough it could become unprofitable and become an attack vector to the network itself. I wish they had increased the block reward to offset the losses.

[@vojin7video]

I've read analysis capping the reduction in profits to 30%. Also, this is the right thing to do on the road to 2.0. The fact EIP 1559 makes ETH deflationary, should by all accounts affect the price in a positive way, amortizing these reductions. I commend F2Pool for being on the right side of history here, as they put it. You'll be OK! ;)

[@codyswartz997]

@@vojin7video it’s not about being on the right side of history. If enough miners decide to stop hashing it will negatively effect the network. You and the devs are assuming you can effectively predict future price action. Most miners have a vested interest in Eth increasing its utility. Most miners don’t mind loosing profits just increase the block reward by 1 is all. The current model is we would lose 30-50% a lot of this depends on the tip and network usage which is unpredictable

[@davycrockett8886]

@@codyswartz997 I think the only people who could possibly attack the network are Ethereum miners themselves and they would suffer financial loses. 30% reduction can be compensated by a 30% price increase. Not to mention all the huge fees earned on a packed blockchain.

[@codyswartz997]

@@davycrockett8886 I completely disagree. Someone with a lot of money or wants eth to loose dominance to say Dot. They would be the ones to pay for the attack via nice hash

[@RanchHandFencing]

I made the switch to Ethereum Classic. ETC just upgraded with the Magneto fork.

[@petermorris1769]

Thanks for making this video! I now understand more, but I don't feel I understand enough to put this into code. Would it be possible for you to explain the steps? For example 1: Get the latest block 2: Get the value XXX 3: Get (some other value) 4: Add XXX to (some other value) 5: Store that value in the new transaction's ZZZ property. If someone can explain these steps to me, I would appreciate it very much!

[@sapster1337]

You shouldn't add the miner tip here 11:54 it doesn't contribute to inflation

[@AndrejAntonov]

I guess the same. "tip" should not matter in correct formula

[@Finematics]

thanks, you're right, it was noticed earlier and I corrected it in the article

[@Eisenhorne77]

As a new crypto person, I am mining. This change will cause me to mine something other than eth. Not sure what that means to all of this but, I would be discouraged to point my miners at eth.

[@CydiaTesterForFun]

I will prob stop minning. Only reason I am doing it now (I only mine on my single gpu gaming rig) is that it is so stupidly lucrative. Last week I was making 0.003 eth a day which should not be ok on a gpu I bought for 500 dollars 1 year ago (2070s). Let's be honest, gas fees are holding back eth so there needs a change. We'll wait and see i guess

[@cloudshad0ws]

If you plan on mining long term (which is the only way it's really profitable from what I understand), then ETH seems like a bad choice anyway since ETH 2.0 is Proof of Stake and does away with miners completely. If you wanted to continue as a validator for the Ethereum blockchain, you could always stake your ETH and become a validator node.

[@RanchHandFencing]

I made the switch to Ethereum Classic. The Magneto upgrade happened yesterday.

[@jakuboboza1713]

Nobody can guess what it will cause. Miners can move away or simply miners can stay with ETH because ETH would yield less ETH but more $ per ETH balancing the chance. Nobody knows what it will mean for miners.

[@MaxPicAxe]

First time someone has actually properly explained this to me, thanks

[@myanimebase6486]

Here from the Patrick's blockchain course lol

[@as-369]

Interesting. Frontrunning will become more of a gambling toy. Good to know.

[@irvin5755]

11:50 Deflationary?.... Well you says that ETH would become like that if: tip + block reward < base fee. But i think that you forgot the fact that the tip is not printing new ETH. In my opinion ETH would be deflationary if: Block reward < base fee. But yeah, Please correct me if i am wrong.

[@noxvi4753]

Yes this! I was thinking the same thing. The miner tip is just the users own ethereum no eth is created.

[@amitupadhyay6768]

It happened !!

[@Finematics]

🔥🔥🔥

[@leoncampa]

Pros and cons for Miners I guess. The real question is: will miners maintain the same profitability than before? If the answer is no, more miners will stop mining, just as block sizes get bigger. This creates more risk for the Ethereum network as a whole as less miners are there to secure it. It also makes it more centralized, as only areas with low electricity costs will still see it profitable to mine. Those areas are few and far between, and tend to be conglomerated in countries which could be prone to manipulation.

[@raymondsalamat]

interesting point!

[@jorgeseixas4386]

Market law, prices will meet equilibrium between demand and supply

[@leoncampa]

@@jorgeseixas4386 That is only correct on small scale theory. Market law, left unchecked, can cause very rapid rise or falls in valuations within very short amounts of time. Prices never stay at equilibrium forever. Natural disasters, crime, wars etc are all factors that can very rapidly change valuations across all spectrums. An un-checked currency can never just remain "stabilized" You need an authority to do so, and that's what central banks are for.

[@jorgeseixas4386]

@@leoncampa Yes, but even then will have a natural equilibrium. Look, it all has to do with market's needs, preferences and other macro factors. But always, always finds stabilisation in market equilibrium. Probably will cause that ETH price will have to rise when demand for transactions is high or lowers when there are more miners than users (to cover your global war example).

[@hos42]

EIPs are not only inspired by BIPs. All governance proposal processes (including non crypto ones, e.g. PEP - Python Enhancement Proposal) are inspired from Internet Engineering Task Force (IETF) Request for Comments (RFCs) which have been used since the first days of the internet.

[@Finematics]

Of course! That would be too much detail for this video, so I skipped that :)

[@edtan9761]

good, i am glad the fee structure is so simple and straighforward.:p what are these guys thinking? hey lets make it MORE confusing than other payment methods? dead in the water... overthinking this will result in people getting upset or confused...

[@cloudshad0ws]

I imagine the actual implementation and UX of it all will be much simpler. This video is just explaining what will be happening behind the scenes.

[@wwxra]

It's happening today😁👏🎉

[@jabrowski_]

This is a great video bro all this time later. Ty. Liked and subbed

[@Finematics]

Thanks for the sub!

[@insomnia1on1]

stupied idea to take out the rewards for miners. so ETH network will become verry unsecure if this gets inplemented. they should just keep on following the WHITE PAPPERS instead of changing the rules when ever they feel like it

[@Brunela111]

good video thanks!

[@sephirotic87]

I'm not a stupid person, but I still don't get the concept of Fee vs Miner tip and how changing it would solve any issue of congestion at all. Basically you take money away from miners to make ethereum less valuable, but the network still keeps congested, miners get less money and angrier and stop mining, thus the network will get even more congested. That doesn't make sense withint a Proof of Work system... I'm a miner, if ethereum stop being profitable I'll just ditch it for the next coin. Don't see how this is any good at all.

[@Snide01]

Miners will make more money from the price rising much higher due to more people willing to buy Eth. Lower gas prices will create MUCH higher demand. Also regular users who aren't buying new coins won't be effected by these crazy rushes to buy into these new projects..

[@DangelGames]

@@Snide01 It may increase the prices, but in no way It will increase the price 2x to 4x as it is nowadays. Also let's be honest, nobody will use "miner tip" because of the nature "Why should I spend more when nobody forces me to?"

[@Snide01]

@@DangelGames People are already using a miner tip so to speak, people will pay extremely high fees to get their transaction to go through first. Seconds can be the difference between a 10 times gain or 100 times gain.. Whales don't care whether they pay 15 or 150 dollars when they are making tens of thousands..

[@irvin5755]

@@DangelGames 2x would be possible if the block size would increase 2x too. Increasing the block size means means more transactions in it. Assuming that the number of transactions posted on ethereum per secound will be the same, it will cost miners 2x longer waiting to mine a block. And this may set the price 2x larger.

[@BrentAllsop]

Nice Video, but I have a few questions. It says it would be deflationary if the block reward + miner tips was less than the base fee. But isn’t only the “block reward” inflationary (i.e. creates new either) while tips come from already existing either. So, isn’t it really just the block reward (new ether) being less than base fee (burned either)? And if we can control the block reward, we wouldn’t “loose control of the monetary policy” as indicated, right? I probably don’t understand but what you called an “interesting feedback loop” between network demand and supply of either seems problematic or destabilizing. When the network traffic increases, there is going to already be a natural supply/demand need for more either (or higher priced Ether). If you add to this less either, by burning more basefee, this will compound the problem, making the price rise even more extreme in such cases, and compounding the opposite way, with less network traffic? Isn’t it better to have feedback loops that stabilize things, rather than make things unstable, like this?

[@moneek1745]

This is what I've been asking all of these ETH developers and have received no responses. With ETH 2.0 in effect, the transaction speed is expected to multiply by 1024 and the issuance rate is expected to reduce. During times of high congestion the system the deflationary pressure due to burning ETH might be more than the issuance (inflationary pressure). This would cause people to hoard their ETH and would lead to a liquidity crisis due to shortage of ETH.

[@JinKee]

@@moneek1745 in 3:30 they say BASEFEE is adjusted automatically block to block. if people hoard their ETH then the BASEFEE becomes lower due to the blocks being half empty. So your ETH goes up in USD value, but what you pay in fees goes down in terms of ETH spent.

[@risssing]

EIP-1559 does not directly change the maximum gas limit per block, instead, it introduces a new fee structure to improve transaction fee predictability. Increasing Ethereum's network capacity, which is a separate topic addressed through other EIPs. For example, EIP-3198 proposes a mechanism to query the current gas limit, and EIP-3200 suggests a way to adjust the gas limit dynamically based on network conditions.

[@felonstomillionaires]

1 year later....This "asset" is still inflationary....Im 1.1 eth in, however, I still dont see how this can become actually deflationary.....the only factor I see that drives the price up, is dependant on ppl buying in...

[@PocolaStones]

But Like Wouldnt this disturb the amount of miners Because Like it is money motivating miners To Mine Ethererum yes this will solve the problem But I Will Just End Up Creating An Even Worse problem So Sha it has already been implemented lets see

[@bar10dr]

How is that a good system? Wait to use the contents of your wallet until you can afford to? Seems like its just moving the problem instead of fixing it.

[@bar10dr]

@@catmaxi2599 Yeah its just moving the problem up in time, it doesn't fix the problem, is my point. It will make it better for a small time period.

[@bar10dr]

@@catmaxi2599 All I said was its not a good system, and it isn't.

[@unknowboudabsa4768]

I literally don't undrestand one word

[@cybermindable]

So how exactly would EIP-1559 help the poor man who sent the transaction before high demand for token showed up? High demand transactions still pay more than the poor man. Why would poor man's transaction be included? Only because the block size increase? In other words, why paying base fee guarantees inclusion in the next block if there's suddenly a ton of transaction paying the same or larger fee?

[@mikelajackson9763]

Your videos are absolutely brilliant!

[@pd7009]

Not deflationary, its inflation SHOULD fall from 4% to 3%. Eth is still INFLATIONARY

[@Phas0ruk]

I really don't understand why EIP 1559 increases the predictability of transaction fees. The user is still subject to a highly volatile miner tip.

[@disterasd123]

Why is volatility for gas prices swapped for volatility in block size, if block size is affected by either high or low usage of network, which is affected by the gas price? (aka previous block's price)

[@fatihbilgeylmaz3966]

Progpow is rejected years ago in order not to delay Ethereum 2.0 . Now they implement this 6 months before Ethereum 2.0 . Home miners are angry.

[@Pythoner]

So if miners now only get incentive from tips, their profitability goes down. There will be less miners and so less computational capacity in the etherium network; which would cause base fees to rise higher. Doesn't seem like a great solution.

[@JohnDoe-kj2cs]

AMAZING

[@wellswatti]

Excellent video. Wasn't involved with web3 before this was implemented on mainnet but great to get into how much more improved the network is thanks to this.

[@nasibasgarov9644]

Is total amount of eth coins will continue to grow by 18kk every year even after eth 2.0?

[@stanleygodspeed4009]

Interestingly enough there doesn't seem to be any attempt in fixing the sandwittch attacks that will still be possible due to miner tips.

[@anythinganybody8733]

Hello sir i hope you are well i really respect your content i want to use your content and translate in another language so here in my country how are not understand English properly so they can understand about web 3.0 and other you amazing content

[@100Hasake]

When you say transactions do you mean like, buying stuff with Eth?

[@electrostatic1]

There is a small mistake at 11:45 not trying to be pedantic, but it is an important concept. You state that eth could become deflationary if "the block reward plus miner tip is lower than the base fee burned". This is not accurate. The tip has no bearing on deflation, it is if the aggregate block rewards are lower than the aggregate base fee burnage. The tips are merely service fees, and the eth represented by them is only being transferred, not created or destroyed.

[@100Hasake]

How does reducing Eth supply (thus Increasing prices) mean deflation though? Is that not called inflation

[@axnoro]

Inflation is the increase in the money supply, deflation is a retraction of the money supply. Inflation directly leads to rising prices of goods and services and falling prices of currency as more people have more money to bid for those goods and services.

[@kissamies]

Even though the other reply somehow explains the idea, as a statement it is false (because of the egg/chicken problem), so I'll add a reply. Inflation is decrease in the value of a currency. It is not increase in the money supply. The value of currency of course can be from the increase in the amount of money, but it can as well be not. The amount of money has increased in our societies all the time, but we still have seen deflation, e.g., during the corona crisis. Also, the amount of ETH has increased and we have seen increase of the value at the same time (deflation). There is of course general correlation between inflation and increasing amount of currency, and there is the same general correlation between deflation and decrease in the amount of currency, if demand stays the same. The latter one is of course rarely tested in usual currency markets, because it is usual for the amount of currency to increase, but it can be seen, e.g., in the price of goods (e.g., oil) (demand/supply). If the oil supply is less, usually it increases the value... and therefore decreases the average value of currency (basically deflation for oil, inflation for the currency). Of course lowering the supply doesn't necessarily increase the demand or even keep it the same. We have seen this many times with oil. That is anyway the basic idea behind saying that burning the ETH is deflationary. Less ETH -> less ETH to sell/less sellers -> more expensive in terms of other currencies if someone wants it.

[@michaelabaya2213]

Fk this sht, you pay fees disregarding the size of the asset you move, small or big, depending on the gas fees

[@Dannydrinkbottom]

if you were a lecturer for a fintech degree, I would achieve summa cum laude. Your videos are so well explained.

[@fdhadi]

STUPID , ETH supply was cut in half many times in the past and prices did not twitch.

[@PachiiPachi]

Is that mean if miners earn money monthly 1000$ when eip1559 relesease that miner earn %30 loss ?

[@gabriel9668]

Very well explained video. Love it!

[@hurdurstudy295]

in the case where everyone pays the base fees and the demand is more than 25M gas, won't that just become a bidding war in miner tips instead ?

[@equibitcrypto8915]

I am turning off my eth miners, will mine something where miners are valued, secure the eth network your self vitalic

[@demisx]

The EIP 1559 has been implemented in the latest London release.

[@panuthep4035]

Before the EIP-1559, the gas fee is the Miner tip you already pay, and now after EIP-1559 you will have to pay the additional Base fee. I'm not quite sure if this the improvement or deprovement.....

[@romancastro6237]

*deterioration

[@joearabia4147]

i dont know about anyone else but the fees seem 100 times higher than the old way at least to me i use to get a transaction done for under 10 at times if i wanted for the right time and now i cant get one done for less than 100

[@hangz--tight7209]

It's an interesting one ! Now if im correct this is backwards

[@ericnordelogaliano3239]

Dude, where were you all this time? :), thanks for making this videos

[@paul-olof]

Thank you for this. Very well put together and easily understood.

[@ricbn1]

Well explained. Gas fee deprived me of much investment opportunity when yield farming project spiked.😊

[@שמואלדישראלי-ב2י]

you should give b.protocol a look, bprotocol.org they found a way to reduce gas fee cost

[@AlexlikesRamen]

please cover pooltogether ! the concept of dai-saving-lottery will kill everything - governance in hands of community

[@captmoroni]

5:15 Hit pause. Hit like. Hit subscribe. Hit play.

[@jorgeneo560]

screw eth, EIP1559 and PoS is made for centralization, vitalik wants the control on a few hands forget eth

[@RaglanErnest]

476 Edgardo Forest

[@duncanstenhouse4336]

Would this mean that we would need to sell our current ETH coins into ETH 1559? Or would ETH 1559 replace the token standard ETH 20 network? Thanks.

[@kissamies]

It's EIP-1559 (Ethereum improvement proposal), not ETH-1559. It is changing the system, not the actual tokens. So no need to sell.

[@thecaliant]

From this explanation, it seems like it will be easier to predict the gas fee required to trade on the Etherum network but as you said, it will impact the way miners will prioritize their workflow and screw up the whole system, I'm pretty sure if this will happen the Etherum team will try to incentive the miners with maybe portion of the base fee so they will not become cherry pickers. So do we know when is EIP 1559 will be implemented if it will happen at all? when is ETH 2.0 will be implemented?

[@ikechukwukevin-chika955]

so does this mean eth would gain value over the years if this is implemented?

[@RanchHandFencing]

Time to switch to ethereum classic. ETC just upgraded with the Magneto fork.

[@Peter-du5zf]

Have fun staying poor

[@igor_cojocaru]

There is no such a thing like eth 2.0 That is the same eth that is evolving.

[@mrin0]

!

[@FelisaSteuber]

433 Claudia Squares

[@TheNaive]

explain solana architecture

[@0xfaizan]

gold level stuff

[@Finematics]

thanks!

[@DilipsCodePath965]

great booss you made me proud on me in your mind

[@CockerViola]

9539 Friesen Harbor

[@vibhxs1942]

Thank you for the education

[@hotdogfart2]

I'm confused. Right now you can set a gas fee high to get your transactions done fast, driving up the price of gas. EIP1559 wants to make a base fee with a tip. sound like the same system with extra steps. people setting high tips will always get done first, forcing prices up as people will need to tip to get theirs processed. Sounds good one paper. But I just see the same issues.

[@karangeeta1904]

Who else is watching it in 2024?

[@tella5357]

I love your videos man. You're doing a really great job. If only more people knew about crypto you would easily have atleast 100k

[@Finematics]

Thanks!! Appreciate your comment!

[@lqpchen]

If base gas fee is very high which means more ether gets burned, then ether will always be inflationary, isn't it? I don't understand why ether is deflationary given that the base fee is always burned. Am I missing something from the video?

[@gamempires]

burning ether makes it deflationary. but there are also rewards that are inflationary. and depending on the base fee, a transaction can be inflationary or deflationary

[@KristenCook-l3j]

Gerlach Station

[@WiseWeeabo]

why does the lady not have feet everyone else got feet

[@vaibhavdalip]

Who gets the gas fee in EIP 1559

[@RaidenFrancois]

Thank you for putting this up! Appreciate the effort!

[@Finematics]

thanks!

[@filohg]

Now too long and too complicated.

[@CarrollAlma-f8o]

694 Jessica Alley

[@fredlacroix6865]

4:14 wrong graphical representation .. more than should use > symbol

[@Finematics]

it is correct the price is just on the right side so the right-hand side is greater than left-hand side

[@survivingthenext6724]

I heated gas ethereum 💩💩💩💩💩

[@ryanlim9886]

250 upvotes and 0 down. I call this a #flawlessvictory

[@Finematics]

Hah thanks! There is always someone to downvote sooner or later so I better enjoy this ratio now :)

[@ByronicLuke]

Soooo was it deflationary or not?

[@MaloryJodie]

4998 Harry Locks

[@Faithful25]

Who is here from freecodecamp

[@devsadisatsowala1003]

good explanation 👍

[@RamsdenPayne]

0777 Heaney Rapid