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Monday, October 3, 2022

Ethereum Upgrade Is Here! EIP-1559, The Most Important Upgrade In ETH History?

Hey everyone and welcome back to crypto explained so the markets are red heading into the afternoon today, with a lot of very important things for cryptocurrency right on the horizon. This includes the infrastructure bill which could be voted on this week, we’re still paying very close attention to what specifically is included in that bill, as it relates to crypto taxation and crypto regulation. It is possible that this bill gets delayed until the end of September if they aren’t able to vote on it this week. Also, EIP 1559 is just days away. It’S likely to go into effect tomorrow.

So this is the software upgrade for the Ethereum network. We’Re going to dig a little bit deeper into what specifically is going to change with EIP 1559 and the Ethereum network. I’m sure you’ve been hearing a lot about this up. This upgrade um, but we’re going to talk about specifically, what’s going to change how it could affect the Ethereum network going forward. If you guys don’t mind hitting the like button down below, it really helps out my channel’s ability to grow and be seen by more people before we get specifically into those two topics.

Let’S just take a real, quick look at the prices this morning, like I said pretty red day across the board: uh bitcoin is down about five percent on the 24-hour moving average and it’s just battling with this 38 000 level. So, let’s go to the chart real, quick and see what this looks like um. As I talked about yesterday. I think this is just a very healthy pullback um from an overbought 42k level. I think people were really starting to panic that they were gonna miss the boat um if bitcoin did smash through 42k and go all the way up to 47 or even 49.

Um, so I think this it was a little bit overbought and then there was an of course, a lot of profit-takings um you’ll see the whale’s profit, take any time, anything’s overbought. So just looking at what’s happened over the last seven days. Um, you see at this peak right here. Almost at 43 000. we’ve slowly kind of been bleeding uh ever since we got to 38 000, but just keep in mind, as I always say in the big picture in the one month, the chart we’re still looking very green because we are all the way down.

At 29 000 below 30k, which a lot of people were panicking about, this was back on July 20th, so not even that long ago. I do think this is a healthy pullback from this big move upward that we saw so obviously we’ll just have to pay close attention to uh the moves that bitcoin makes, but as of now, I just think this is another great buying opportunity, um and some profit Taking happening before the whales get right back in and get ready for another leg up, that’s my opinion.

Ethereum is has just it below 2500. So a lot of people are talking about this EIP 1559 news um. If you see this big spike um on the seven-day chart here, this is pretty much just from eip1559 hype.

In my opinion, and a lot of people are saying: oh wow, it’s moving up even more so than bitcoin, but now the bitcoins kind of pulling back today we’re seeing a pullback as well. I did say that when EIP 1559 is officially implemented, which looks like it’s going to be tomorrow, I actually expect a little bit of a red day because a lot of times people sell the news and we’ll talk about it a little bit later as well.

But i do think the um real effects of this software upgrade are not going to be felt for a year or so, maybe even longer. So it’s not going to be an instant impact kind of think about how bitcoin having’s um, how the market kind of reacts to that. It’S not instantaneous.

In fact, when bitcoin has happened last year, basically, nothing happened, but then we all know what happened afterwards. Uh the rest of cryptocurrency, you know, there’s some red, there’s some green, but for the most part, the alt to bitcoin chart looks like Alts are not going down as much as bitcoin right now, which gives a lot of people hope that this is just kind of A temporary pullback before we have another leg up, I’m sure people are, you, know, kind of waiting on their hands and knees to see on their hands and knees, waiting on pins and needles to see um, what’s going to happen with this infrastructure bill.

So let’s talk a little bit about that: how language in the infrastructure bill could roil the crypto markets royal, just meaning anger. The senate’s infrastructure bill requires any broker to report customer information to theirs, but it could expand the definition of a broker to include a vast amount of participants, including miners wallets, wallet exchanges. Things like that.

But this is actually a little bit out of date because there was a push uh by people within the crypto industry to change some of the languages, and some of that language has been changed as far as what specifically a broker includes. So this key point right here is just a little bit out of date um. I do think that the crypto industry had a big-time win when there was uh language change.

As far as that definition, if passed with the existing language, which again it seems like they’re not really caught up with that, the bill could deter innovators and investors from doing crypto business in the u.s and force some companies to shut down or move offshore crypto investors Say so, language in the bill would require crypto brokers to report customer information to the internal revenue service.

We talked about this in the last few contents how some of this information that they were actually asking to be reported, wasn’t even informed that this quote-unquote. Brokers had because it’s just one of those things where I don’t think a lot of people in congress understand how decentralized cryptocurrency actually is, and you don’t really have all of your customer’s information just on hand.

The language gives a lot of power to define what should be included in the reporting requirement. It says any person who is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person we all know this is how congress works. There’S very broad and um ambiguous language inside the bill that kind of gives them a lot of breathing room for what they want to do.

Uh, bitcoin fell more than five percent on Monday and it lost 1.8 percent. According to coin metrics. With some of the uncertainty around the bill weighing on sentiment, so I think sentiment right now is just kind of waiting to see what specifically is going to be included in this bill. Whether it’s going to be voted on this week, which we will find out shortly or if it’s going to be delayed until the end of September because of congress’s break, they get a lot of breaks.

I’m just saying that that’s for uh, you know the schedule that they have. They seem to get a lot of time off um. In practice, your only options would be to shut down or to move offshore um. If you know certain regulations and certain language in this bill threaten to do US crypto companies by forcing them to report information to theirs that they don’t have and can’t get so that’s I love this that they include this point right here, because it’s not like, unless you really you know, sacrifice the decentralization aspect of cryptocurrency. It’s not like you can actually really get all of this information that they’re asking for, but again this a lot of this language was changed.

So this is a little bit out of date when they’re talking about um, what’s included as a broker, hopefully, there’s more language that gets changed, because we really do have to address the fact that a lot of the information that theirs would be asking for is Not available it’s not in the possession of these quotes: unquote: brokers, um. This is really important to keep in mind.

The language would not affect centralized exchanges like coinbase or other public companies, where consumers can buy cryptocurrencies like Robinhood square and PayPal as public companies. They have clearly identified customers and work with them on reporting requirements due to theirs. So, as we talked about last year, coinbase has already had to report certain information to theirs, and this just has to do with people paying taxes on traded assets, and you know that is to me.

That’S that’s normal. That’S acceptable. That totally makes sense. You should pay um capital gains taxes on trading, that’s how investments work um. So if you’re holding bitcoin or another cryptocurrency for more than a year on coinbase, that’s probably not going to affect you in any way unless you sell it later this year.

So just keep in mind, you know i. I saw a lot of people on social media kind of panic mongering, get all of your cryptos off of exchanges, get it off now. Well, it’s not well, it’s still, not too late um. I think I was going a tad bit far because I don’t think that, especially if you have it on coinbase or one of these bigger exchanges it this is barely going to affect you. Coinbase, for example, example spent 80 million earlier this year to acquire bison trails to power at staking service.

Much of the company’s revenue is based on trading fees, but CEO Brian Armstrong has said he expects to diversify those revenue streams which includes beefing up its staking offering so um. This is another thing that you know is going to be very important to pay attention to.

To is the language as far as what’s legal and what’s not legal for staking because a lot of people can stake certain cryptocurrencies on coinbase itself. So you’re, not even really, you don’t even really have custody of the cryptocurrency. That’S on the exchange, but you can earn rewards just by holding it on the exchange.

That’S gonna be interesting to see how the bill affects that so um, just as a kind of um end to this article, bitcoin miners, who also don’t have customers whose information they can report, could get hurt if the bill passes with the existing language again.

This has been changed, deeming them brokers that would be a blow to the sector, which has been keen to take more market share after the Chinese crackdown on mining that moved more than half of bitcoin’s binding operations out of China, much of it to the US, Which we talked about yesterday, we haven’t given up hope that this can get fixed yet there’s definitely a pretty intense advocacy effort going to get that changed so that advocacy effort has made a difference and they have made adjustments to that bill.

We’Ll just have to see the final, you know we’re still kind of speculating which I hate doing I hate speculating. I wish I just had some concrete information, but this again is how congress works. Things are always changing within the bill until we see the actual language of the final bill, that’s being voted on, we’re just still kind of guessing, but for the most part, I don’t think that this is a reason to panic.

I think that regulation in some ways is legitimization, and you know what they’re trying to regulate is totally understandable. Now a lot of it was overreaching, but I think for the most part that has been changed and until we get the final language of the bill, I’m not really that worried about it. Ethereum blockchain eth’s fee upgrade EIP 1559. So we’re going to talk about this.

Specifically, because this is a big deal for Ethereum, and this has been years and years in the works, this is something that two of the biggest problems with the Ethereum network are being at least addressed through this upgrade, I’m not going to say fixed because we’re going To have to kind of see how it plays out first, but they’re at least being addressed, and those two major major problems were obviously the inflationary nature of eth itself uh of the currency because of the fact that it could be um, you know, mined into circulation.

At a rate, that’s quite alarming um and could just become a very inflationary asset at the end of the day, also the Ethereum gas fees, so basically like transaction fees when you’re converting certain uh certain Ethereum tokens or making purchases with ether any of that kind of Things if the network is really congested, those gas fees can get so astronomically high that it’s not even worth using the Ethereum network for any kind of transactions, so both of these things are attempted to be addressed through the eip1559 upgrade. Let’S talk a little bit more specifically by the way. This is an article on Gemini’s website. Gemini is a crypto exchange. I’m going to put the link in the description if you guys want to look at it after the content as well.

I really like that. Gemini and Kraken as well. They include a lot of information. Um, that’s free! That is just you know, a little bit more detailed about certain things about cryptocurrency that may just kind of split people’s minds um.

This is a very important um update to this network, and I love the fact that they have this available to anyone who wants to check it out, like I said, link in the description eip1559, a proposal to update transaction fees on Ethereum. Of course, this proposal is no longer a proposal. This is actually happening and it’s likely going to go through tomorrow.

So, just a real quick summary: it’s a proposal to make Ethereum transactions more efficient by using a hybrid system of base fees and tips to more evenly incentivize miners in periods of high and low network congestion, so trying to make the gas fees just a little more Consistent, whether or not um, it’s a very congested network, or whether or not there’s not a lot going on, it’s obviously never going to be completely consistent, because you know it is all based on the network congestion itself. But in this proposal, a base fee is the algorithmically determined price you pay for a transaction on Ethereum tips are defined as optional fees that you may include to speed up transactions if implemented eip1559 could greatly reduce transaction costs and improve Ethereum’s overall user experience, which is So so important for them um.

The tips are kind of weird to me. I’m still kind of trying to work out exactly what this benefits, but that’s, basically you can just um. Oh, you can offer to pay more on your transaction fee for it to go through quicker. Do ether, transaction fees need a two-tiered system, as Ethereum has grown in popularity, estimating appropriate eth gas fees has become very complicated. That’s a huge understatement.

Users often encounter transaction confirmation. Delays Ethereum improvement proposal 1559, which is what EIP stands for, offers a remedy for these issues by updating how transactions work on Ethereum and changing the underlying economics of the network’s existing monetary policy.

So we talked about the algorithmically adjusted base fee alongside the option to include a tip to speed up the transaction to better understand EIP-1559. We must first unpack the basic structure of Ethereum transactions. So I’m not going to go too deep into this because it gets very complicated but just kind of as an overview.

We talked about gas fees, so this is. This is how gas fees currently work. It uses a simple auction system to determine which transactions are included in a block. The more you offer to pay the more likely a miner will include your transaction in an upcoming block. However, this auction system is arguably inefficient, because users must estimate the appropriate fee required to complete their transactions, and this is how these fees can get so crazy because you can have a very busy network at a certain time.

Let’S say Ethereum spiked in price spiked. In price – and you want to sell ether, you want to convert it to some other eth token. If that happens, then a lot of people are probably doing the same thing at the same time and those fees can get so high that it’s just like if you’re trying to make money specifically on a trade, it’s almost not even worth doing it. So that’s very important that this is being addressed and hopefully fixed and also block size is another important thing. So uh we talked about the hard fork between bitcoin and bitcoin cash and the reason that happened was block size.

Just you know, people arguing over how big the box should be what’s really interesting about what eip1559 is going to include is that these will be flexible block sizes, so there’s no specific determination on the block size itself, and this is just you know the hope behind This is that it makes everything kind of move a little bit smoother and it just depends on um the specific um instance, and it’s not really just pre-coded into the network itself.

How big these blocks are going to be, because you know, when you have the bigger blocks, it can sometimes overwhelm the network with too much data, but also, if the, if the blocks are too small um. Sometimes that can just kind of make the network run in a way that it’s not supposed to run so eip1559 is trying to address this and make and kind of innovate a new way to do this now, bitcoin maximalists. The reason that they kind of are scared of Ethereum in the first place and don’t really trust it is like. I and I think this is a good point.

To be honest, if you have adjustable things like the block sizes, where does that end right and um? The reason that bitcoin works as sound money is that all of the properties that are literally coded into the network are so stringent and so non-changeable that it’s always going to be. We always know what we can trust with bitcoin and there’s really no central entity or um anything really that can change the core fundamentals of bitcoin with Ethereum. It’S different Ethereum is really trying to kind of rework the way that this whole network um the whole. This whole network operates and, for the most part, I don’t think that’s a bad thing, but it’s just important to ask yourself like: when would that change?

You know what I mean like when would that at what point do we just say? Okay, Ethereum is good. The way it is and we’re just going to keep it the way it is because it works, and it’s always important to change and innovate and make sure that you’re keeping up with the times.

But this is why I truly think that bitcoin and Ethereum can kind of coexist, um and I’ll get into that a little bit later, but just to wrap this up. Um, Ethereum is still under active development and eip1559 demonstrates that even core aspects of the system can be considered for a drastic overhaul, which is kind of what I was just saying.

The eip1559 proposal promises to improve how transactions are processed and streamline the user experience by decreasing transaction costs and making it easier to navigate fees in a less wasteful manner. So not, you know, just haphazard, based on how much you want to pay which can be astronomical. Sometimes EIP 5059 also could benefit eath holders by restricting the supply of eth through the burning of gas fees, so this is or base fee sorry. This is what’s really really important. So when you’re talking about those base fees versus the base of the tips, fees would essentially just get burned, which means that Ethereum, in almost an instant, becomes not an inflationary asset but a deflationary asset, and that is one of the best things about bitcoin itself.

Is that it’s a deflationary asset, something that we really don’t have a lot of in the world, especially when it comes to currencies? Currencies are always inflationary, that’s just the way it works um, but this is where they’re, literally trying to kind of bottleneck the process in which Ethereum is mined into circulation.

So the fact that these fees that are paid for the certain transactions they would just get burned is very interesting to me and actually one of the best ideas I think Ethereum has ever had now we’ll have to see how this all turns out. Like I said a lot of times when you get these big sweeping overhauls, you don’t see the effects with the price itself for quite a while, and I would always go back to as an example the bitcoin havings to me. The bitcoin havings are one of the most genius aspects of any network.

It’S literally coded into the network that a supply shock happens every four years and it’s actually every 240 000 blocks, but that just kind of plays out itself to be every four years. But to me that is so important and so central to what makes bitcoin so amazing, um and Ethereum’s kind of trying to have their own play on this. It’S very different and I still think, for the most part, Ethereum wants to be somewhat of an inflationary asset because it always wants to innovate right. The programmability of Ethereum is what really separates it. So when it comes to, obviously you know decentralized exchanges, um Ethereum tokens and NFTs, that is where Ethereum really shines.

Um, most of the NFTs that you see sell for crazy amounts of money. Um, are Ethereum. Tokens are Ethereum based on the Ethereum blockchain. But to me, I think NFTs can go so much further than just overpriced collectables. To be honest, I think that um, you know eventually an NFT could be your driver’s license, could be the deed to your house, your health insurance information, whatever.

I think that that could really really be an interesting development in the way that we keep documents, because, right now, it’s usually on a centralized database, which is so risky uh. As far as you know, the security of those that very, very important information.

So that is why I think Ethereum has a lot of promise and I love to see um updates like this happen, that they address the issues that are at hand within the network, and I think that bitcoin and Ethereum could coexist. I really do I think bitcoin could be the sound money. The store of value well, Ethereum is the programmable money that you can use the forum.

So many things I’m not even going to list all of them because it’s really kind of endless when you think about the potential use cases for um certain aspects of the programmable money. That Ethereum makes Ethereum could kind of be like the world’s decentralized computer. Whereas bitcoin can be the world’s decentralized uh stored value, so we’ll see how all this plays out. I’m definitely going to be um continuing to talk about eip1559 and see how everything goes because again think about how the bitcoin price reacts to the bitcoin havings Ethereum’s. Never really had a having there’s never been an Ethereum.

Having EIP 1559 is the closest thing to an Ethereum having we’ve ever had and when, when bitcoin, every 240 000 blocks roughly every four years. Has this had an event we all know what’s happened, the last three halvings? If you’ve loaded up uh right before and after the having and waited a year or more, I mean you’ve probably done very well for yourself in bitcoin. So I’m not saying that’s guaranteed to happen with Ethereum and this update. But you just never know because this is literally a live experiment.

We’Re literally experimenting um with new technology, new networks and seeing how these um certain implementations can actually affect the value of um the currency. That’S included with this blockchain, this decentralized blockchain network.

So again, I will definitely keep you guys updated as far as what’s happening with this update um and to see how it’s going to affect not just the ether price, but also the overall usage of the Ethereum network, to see if it’s a little bit more usable And if it’s a little bit more um, the potential could be a little bit more promising, so we’ll see how all of it turns out thanks again for watching the content. I really do appreciate it. If you guys have any questions about anything that I missed.

Anything specific definitely put it in the comment section below, and I will do my best to answer once again just to let you know, I will put the um eip1559 article, the link for that in the description of this content. If you want to just read that yourself and kind of educate a little bit about, what’s going to specifically change um, I really do appreciate you guys tuning into these content.

It means the world to me. I’m really happy that I’m kind of back on my schedule and releasing this content there’s gonna – be a lot happening for the next six months now. Does that mean that we’re gonna see this massive bull run and bitcoin breaks 100k Ethereum breaks 10k?

I have no idea – and I’m not going to sit here and tell you that I do you guys can go to Bitboy. For that I just don’t I’m trying to really stave off from speculation, because if that happens, great it’s going to be awesome, but if it doesn’t happen, I don’t think that’s the end of the world for cryptocurrency, and I don’t think that you know that changes.

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