The London hard fork update took place a few months ago, and it included a mechanism (EIP-1559) that changed Ethereum’s fee structure to a new system that makes ether deflating. Since then, 1 million ethereum has been destroyed, which is roughly comparable to $3.8 billion in today’s exchange rates.
Ethereum (ETH), the second-largest crypto asset by market capitalization, is currently valued at just over $500 billion. Ethereum’s market capitalization accounts for 18.8% of the $2.7 trillion cryptocurrency market. Three months ago, on August 5, 2021, the Ethereum network was modified, and new functionality were added to the agreement rules. EIP-1559 and EIP-3554 were the most influential, with EIP-1559, in particular, introducing a new charge rate mechanism that allows the network to burn a portion of its ether.
According to the EIP-1559 summary on Github, the protocol features a basic cost per gas that can go upwards or downwards per block depending on a calculation that is a ratio of the gas consumed in the parent block and the gas limitation of the parent block (block gas limitation/elasticity multiplier). If blocks are above the gas objective, the base fee per gas increases, and when blocks are below the gas objective, the base charge per gas decreases. Whenever gas is consumed, the base cost is deducted.
What went wrong?
OpenSea.io, a famous nonfungible tokens (NFTs) network, and Axie Infinity, a play-to-earn NFTs game, are two famous decentralised applications that contribute to Ethereum burn. Next, decentralized exchanges such as Uniswap, 1inch, and Sushiswap accounted for a significant part of ETH burning. ETH is also burned during transfers from Ethereum-based stablecoins like Tether (USDT) and USD Coin (USDC). Furthermore, regular ETH transactions and MetaMask wallet members contributed to the platform’s activity.
According to Ultra Sound Money, approximately 11,042 Ethereum is burned every day, about 7.67 every minute. Every year, about 4 million ETH is burned at present rates. On the other side, the network presently generates roughly 5.4 million Ethereum per year. As a consequence, the ETH network is still growing on a global basis.
According to etherscan.io’s API, which reveals the circulating ETH supply, there are currently 118,472,428 ether in circulation. The non-fungible token marketplace Opensea remains the biggest ethereum burner currently, with 110,079 ether (or $397 million) burned to date.
A total of 7,941,965 ethereum transactions were burned as a result of Opensea usage. Since the August upgrade, daily ethereum transactions have burned a number of 94,800 Ethereum. Uniswap V2 (version 2), a decentralized exchange (dex) network, became the third-largest ether burner after the update. Considering today’s currency fluctuations, Uniswap V2 consumption has culminated in the burning of 92,237, or $373 million in ethereum.
All of that is ready to fully change upcoming year, when Ethereum 2.0 is released, moving the network’s agreement from proof-of-work to proof-of-stake, with staking rewards much smaller than mining payouts. As a consequence, the blockchain’s supply ratio is much lower than its burn ratio, culminating in a deflationary environment. The peak output of Ethereum, as per the Ultra Sound Money, will be 119.7 million in 2022, before falling.