EIP-1559: $14M ETH burned after London hard fork launch
Yesterday the long-awaited London hard fork was finally activated on the Ethereum (ETH) network. One of the raucous features is the EIP-1559 update designed to reduce and burn transaction fees.
London is success
The London hard fork has successfully launched. The integration was rather smooth with no failures detected, which means Ethereum has now been burning fees for over a day. This can be easily monitored in real time.
EIP-1559 has introduced a mechanism for burning part of gas and base fees, which is expected to turn Ethereum into a deflationary asset. The innovation appears to be crucial since Ethereum currently remains inflationary under proof-of-work (PoW) consensus due to the ever increasing supply on the market.
“Fifteen-fifty-nine is really meant to create an ecosystem that encourages lower gas fees,” said Auston Bunsen, CTO at QuikNode.
Experts believe the future merge with ETH 2.0 and transition to proof-of-stake (PoS) will make Ethereum deflationary. This is supposed to be eased by the block reward issuance reduction and fees burning.
“The price ratchets up very quickly, and algorithmically, to the point where you should get to a clearing price that allows the block to be at its target of half full, and certainly that allows all the transactions that want to go through to be processed,” explained Matt Hougan, chief investment officer at Bitwise Asset Management.
Ethereum on fire
According to the Ethereum Block Chain Explorer, ~5,000 ETH have been burned over the past day. Similar figures are provided by WatchTheBurn, which tracks burning in real time. Therefore, around $14 million (~£10 million) worth of tokens has been burned at the moment.
The current burn rate implies destroying around 4,500 ETH per day. However, this indicator is variable and depends on the network load and gas prices surge.
Even though the worth of the coins withdrawn from circulation seems significant, the Ethereum supply still proves to be inflationary. According to media reports, 2.24 million ETH were issued in the first seven months of 2021. Thus, the annual issuance will presumably increase by an average of 3.3%, from 114.1 million to 117.9 million.
Based on the daily burn rate, the inflation rate is expected to plummet by an average of 1.3-2.6%. This gives solid grounds that switching to proof-of-stake will turn Ethereum into a deflationary asset.
Gas prices skyrocket
One side effect of the London hard fork launch is increased gas prices. According to Bitinfocharts, transaction fees have ballooned by about 70% over the past day reaching $15 (~£11).
A Twitter user trent.eth blamed this on the network congestion caused by various factors: the COVIDPunks NFTs drop, disabled transactions during upgrades, which results in catch-up demand, and the general market volatility.
London hard fork is finally there for all crypto lovers! Reduced transaction fees are hopefully coming soon, however, things are quite different right now. The fees have surged by about 70% due to the network congestion. Meanwhile, hundreds of thousands of dollars worth of ETH are consumed by the proverbial flames every hour, with nearly $14 million burned to date. Time will tell where it all gets us.
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