The aim of the improvement proposal EIP-1559, introduced with the London upgrade, was to slow down the growth of the ether inventory. Now it has even been reduced.
At the end of last week, more ethers were burned in transactions than new mined in 24 hours. This reduced the inventory on balance. That’s a first for the network that has been around dem London-Upgrade At the beginning of August it had already attracted attention several times due to its high burn rate. Just hours after the start of the London hard fork, we could see that in the Ethereum-Network per minute the equivalent of $ 13,000 and more was burned. Currently, the amount of burned ethers is approaching the limit of 200,000, which currently corresponds to around 800 million dollars.
At that time – and it continues to be true for the current situation – that was mainly due to the NFT marketplace Opensea. With a gas consumption share of almost 15 percent (around eight million dollars) in the past 24 hours, it is unmatched at the top dem Stablecoin Tetherwhich is only responsible for around five percent gas consumption. This is not surprising, because NFTs are characterized by a conglomerate of various transactions, just like the website cryptoart.wtf had made clear.
The Defi-Börse follows in third place Uniswap with a share of 4.3 percent. Tether and Uniswap have been swapping places since the beginning of August. Relatively new in the top ranking and already in 4th place das Krypto-Game Axie Infinity, which had seen rapid growth from 30,000 to over a million game players in the last three months.
The burning of transaction fees is part of EIP-1559 and so completely new. Before the London upgrade, the transaction fees in the network were set independently by the miners who carry out these transactions. Since London there has been an algorithmically determined base fee instead. This is a basic fee that does not have to be auctioned for each transaction, which should theoretically lead to greater stability in the previously strongly fluctuating fees.
The calculated base fee should take into account the degree of utilization of the network and gradually increase or decrease. The block size in the network should also be changed dynamically in order to counteract blockages. The base fee determined in this way is burned in the course of the transaction, i.e. destroyed by the protocol. Nobody benefits from these payments, which are always fixed to Ether due to the new regulation.
This will reduce the growth rate of the ETH portfolio. However, this does not have to mean a reduction in supply, because the miners can keep the ethers mined with each block produced. And as long as these are higher than the burnt fees, the supply of ether increases.
In this way, it is possible to roughly predict what has to happen for the ether to become deflationary, i.e. to decrease its inventory. As soon as more fees are burned than re-mined when there is high demand, the supply drops. The increasing demand for NFT and defibrillator services is a development that goes exactly in this direction.
The network has hardly any ability to react in the short term. In general, the base fee should increase in times of high demand. Of course, something could be done here if deflation became too severe. On the other hand, this would encourage clogging in the network. So it is time for Ethereum to position itself more broadly and to push the announced Layer 2 solutions or – even better – the implementation of Ethereum 2.0. This would increase the processing speed significantly and the clogging aspects would play a lesser role.
These developments seem to be good for the course of the Ether. It has increased from around $ 2,500 on the day of the London upgrade to over $ 4,000 on Friday and is hovering between $ 3,900 and $ 4,000 at the time of this post.