Bonfire on Ethereum (ETH) – The network has recorded its 100,000th ETH burned, just under 3 weeks after the London hard fork. The latter, however, did not solve the main problem facing users of the network. And even if an increasing number of ETH transactions use this mechanism of destroying a part of the gas fees, the proportion of these transactions still does not exceed 50%.
Deflation on Ethereum: a London pyre at 100,000 ETH
According to The Block, 100,000 Ethers worth $300 million were burned on Ethereum in just 20 days after the London update. This massive burn has significantly decreased the level of Ether inflation. The supply of Ether was increasing before this mechanism, by about 5% per year. This figure would now decrease by 35% thanks to the destroyed Ethers.
The EIP-1559, included in the London hard fork that took place on August 5th 2021, allows users to better estimate the real cost of each transaction. The fees are in fact, subdivided on the one hand into basic fees, which go directly to the network and are immediately destroyed, and on the other hand into rewards for the miners who process and validate the transactions.
London: between unexpected consequences and gradual rollout
London has had positive consequences on Ethereum’s capacity, which has increased by about 9%, according to Vitalik Buterin. It did not, however, reduce gas costs. The latter even quintupled from around USD 4 at the end of July 2021 to USD 20 by the middle of August 2021. The NFT fever, with the explosion of prices of certain “works” such as the jpeg of an old rock, would explain in part this increase in transaction fees.
London is already having a visible impact on Ethereum, but the implementation of EIP-1559 is not yet systematically applied to all transactions. The CoinMetrics newsletter of August 24, 2021 reported an increase in the percentage of ETH transactions using theEIP-1559. This increased from approximately 23% on August 18, 2021, when MetaMask had announced that it would begin implementing EIP for its users, to over 40% on August 22, 2021.
London’s effects on network capacity and Ether de supply were not long in coming. This former Goldman Sachs executive believes that Ether has a better trading setup than Bitcoin thanks in part to this burn mechanism that would increase Ether’s scarcity and make it deflationary.
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