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Binance Smart Chain proposes a fee-burning mechanism similar to Ethereum’s (ETH) EIP-1559

Sat 23 Oct 2021 ▪ 20h45 ▪ 4 min read — by James Taylor

Binance Smart Chain developers propose a new Ethereum-like fee-burning mechanism. The burn would initially be set at 10% of transaction fees, but the figure may change in the future.

According to the proposal, Binance Smart Chain will adopt a regular fee-burning mechanism, similar to the one in Ethereum EIP-1559. So far, the proposal is in development and will or will not be implemented depending on the results of the vote.

The developers recommend burning part of the transaction fees in each block and adjusting this share through the network’s governance system. As a result, validators on the network will receive less transaction fees, as they will be destroyed instead. This will help reduce the volume of the circulating Binance Coin (BNB) supply over time.

Burning is a term used to describe cryptocurrencies being sent to a “burn address” where they are no longer accessible. Since no one can spend them, they are considered destroyed and no longer count in the total supply.

The burn will initially be set at 10% of transaction fees. The network currently receives about 6,814 BNB ($3.4 million) in transaction fees per day, so burning this amount will reduce the supply by 681 BNB ($334,000) per day.

In order for the proposal to move to the voting stage, it must receive a minimum deposit of 2,000 BNB. In that case, validators on the network will be able to vote for or against the changes to go ahead. If it passes, the changes will be implemented immediately.

Binance Smart Chain already burns coins regularly. Initially set at a proportion of Binance’s trading fees, the exchange continues to burn large amounts of BNB every quarter. As a result of the last burn on 18th October, 1,335,888 BNB ($659 million) were destroyed.

Following in Ethereum’s footsteps

This proposal is similar, but not identical to the one introduced on Ethereum by EIP-1559. The ETH change added a burn fee, which may rise or fall based on demand, to every transaction. As a rule, the total amount of fees burned has been lower than the new amount of ETH issued per block – meaning that inflation on Ethereum is decreasing, but the cryptocurrency still hasn’t become deflationary.

The difference with the BSC proposal is that there is currently no inflation on the network. Thus, instead of reducing inflation, the innovation will make the network deflationary right from the start.

Whatever the outcome of the vote, it has already had a positive impact on BNB – in the light of the BEP-95 proposal and the start of voting, the price of the token has approached $500.

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James Taylor avatar
James Taylor

Trends are temporary. The blockchain isn’t a trend; it’s the future. I want to help as many people as possible understand it in a simple, clear and interesting way.

DISCLAIMER

The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.

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