By Alicia Maher
The much-expected Ethereum London upgrade started yesterday, and millions of Ethereum are already burnt. The Ethereum London upgrade, incorporating the popular EIP-1559 proposal and other proposals, especially on transfer fees, commenced yesterday.
One of the consequences of the upgrade is the burning of some of the base fees, and so far, there have been no hitches. Lots of monitoring tools are being used to determine the amount of burnt Ethereum.
An Etherchain data reveal that at least 3,650 ETH have been burnt already. Using the current rate, the value of the burnt ETH is about $11 million, although the upgrade hasn’t lasted 24 hours. If this rate is sustained, 3,600 tokens will likely be burned daily.
Impact of Burning On ETH Supply And Issuance
Eventually, this burning rate would affect Ethereum supply and issuance. Also, ETH would still be mined, and the token economics won’t be deflationary yet. However, there will be a decrease in block reward issuance after the network changes to become a proof-of-stake protocol.
After that, the constant burning of the ETH tokens earned from transaction fees will cause issuance to be deflationary. The combination of a bull crypto market, the boom in the Non-Fungible Token (NFT), and the Decentralized Finance (DeFi) niche have increased interest in Ethereum.
The increasing interest peaked in May 2021, and peak demand resulted in peak average transaction fees. Even smart contracts gas fees were in their hundreds of dollars during that period. Even though there isn’t much demand compared to that peak period, Bitinfocharts data show that gas fees are still within the $16 region. Thus, it is likely that millions of ETH will get burnt by the end of the upgrade.
Up To 1.5 Million ETH Could Be Burned
Chapman crypto’s bankless newsletter has been running some calculations and making various hypotheses to estimate the possible amount of Ethereum that could eventually be burnt. The firm’s president, Ben Giove, revealed that it is difficult to make accurate predictions since the base fee per block isn’t fixed. It is often between 25% – 75% of the whole transaction fees.
But using the extremes mentioned above, he estimated that the implementation of the EIP-1559 would result in the burning of 457,000 ETH (using the 25% burn rate) or 1.5 million ETH (using the 75% burn rate) in Ethereum’s 2021 year-to-date (YTD). Thus, when these figures are projected over a year, then it is expected that 780,000 or 2.5 million ETH will be burned by year-end.
Using the current conversion rate between ETH and US dollars, about $2.3 billion or $6.7 billion worth of ETH will be burned. Even though these are hypotheses at best, they still give a rough idea of the effects of this upgrade on Ethereum’s supply and issuance in the short-term and possibly, the long-term. It remains to be seen the effects of this issuance and supply on the network, projects, miners, and the competition, especially Solana and Polkadot. Some miners are mooting a move the competition already.