Ethereum’s Bold Move: Ether Burn Boosts Deflation

  • Since the introduction of the London hard fork and the implementation of EIP 1559 nearly two years ago, over 3.46 million ether (approximately ZAR 213.35 billion) have been permanently removed from the Ethereum network. The change has created a deflationary effect, reducing the total supply of ether over time and addressing issues of high transaction fees and scalability.
  • The burning of ether comes from a diverse range of sources, including regular cryptocurrency transactions, NFT trades on platforms like Opensea, and usage of Tether on the Ethereum network. The varied sources highlight the widespread adoption and effectiveness of the EIP 1559's deflationary mechanism.
  • The transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS), combined with EIP 1559, has resulted in only a little over 3 million ether being created, as opposed to the projected 6.5 million. The deflationary approach aims to combat inflation and maintain Ethereum's value as a scarce digital asset, significantly impacting the network's tokenomics.

Nearly two years past, a landmark event occurred in the Ethereum network with the introduction of the London hard fork that brought EIP 1559 to the forefront, dramatically altering the management of transaction fees within the system. Now, reflecting on its results, we note that this innovative strategy has culminated in the permanent eradication of over 3.46 million ether, a staggering amount equivalent to approximately ZAR 213.35 billion based on the current exchange rates in South Africa.

The EIP 1559 has played a pivotal role as a deflationary mechanism in the Ethereum network. Its primary objective was to introduce a base fee component, that is incessantly expended, thus gradually decreasing the overall supply of ether. This unprecedented approach was brought into play to navigate around issues of high transaction fees and network scalability. The effectiveness of this strategy is showcased by the average of around 146,000 ether that has been annihilated monthly since its inception.

Ether burn-off sources are manifold, reflecting the wide adoption of EIP 1559’s deflationary mechanism across various platforms. Almost 300,000 ETH, forming the bulk of the total ether reduction, can be traced back to routine transactions involving the digital currency. Furthermore, the booming popularity of Non-Fungible Token (NFT) transactions, particularly on platforms such as Opensea, have also substantially contributed to the burning process, accounting for more than 230,000 ether. An additional 200,000 ether were consumed in transactions on the decentralized exchange, Uniswap v2.

The utilization of Tether on the Ethereum network led to the burning of over 150,000 ETH. Additionally, transactions between versions 1 and 3 of Uniswap resulted in more than 200,000 ether being eliminated.

Before the notable Merge on September 15, 2022, when Ethereum made a shift from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) blockchain, the network was on course to produce about 6.5 million ether. However, post the enforcement of EIP 1559 and the transition to PoS, only slightly more than 3 million ether has been generated. This disparity of approximately 3.5 million ether clearly illustrates the considerable effect of the Merge and EIP 1559 on Ethereum’s total supply.

The strategy of gradually curtailing the total quantity of ether through EIP 1559 and the transition to a deflationary approach has had a profound impact on the network’s economics. Currently, with a circulating supply of over 120 million ETH, Ethereum strives to address inflationary issues and uphold its value proposition as a scarce digital asset in a rapidly evolving South African and global crypto ecosystem.

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