Thursday, September 23, 2021
HomeNewsThe stock is decreasing, more ether burned than mined

The stock is decreasing, more ether burned than mined

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. This is a first for the network that has already attracted attention several times since the London upgrade at the beginning of August due to its high burn rate. Just hours after the start of the London hard fork, we were able to observe that the equivalent of US $ 13,000 and more was being burned in the Ethereum network per minute. The amount of burned ethers is currently approaching the limit of 200,000, which currently corresponds to around 800 million dollars.

New use cases such as NFT and Defi are driving up the burn rate

That was at the time – and it is still true for the current situation – above all on 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 ahead of the stablecoin Tether, which is only responsible for around five percent gas consumption. This is not surprising, because NFT are characterized by a conglomerate of various transactions, as the website had already made clear.

The Defi-Börse Uniswap follows in third place 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 fourth place is the crypto game Axie Infinity, which has seen rapid growth from 30,000 to over a million players in the last three months.

That’s behind burning ether

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 in theory should lead to greater stability in the previously strongly fluctuating fees.

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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.

This is how ether becomes deflationary

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 little chance of reacting 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 went 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.

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Hasan Sheikh
Hasan, who loves technology and games, is studying Computer Engineering at Delhi JNU. He has been writing technology news since 2016.


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