Ethereum inflation rate drops: 18,000 Ether burned since hard fork

Less than a week after the much-anticipated hard fork “London”, the first effects of EIP-1559 are already showing, with around 18,000 Ether now burned. The supply curb could prove to be a price driver.

Ethereum is currently on a run. In just two weeks, the second-largest cryptocurrency has risen a remarkable 40 percent, adding nearly $1,000 to its value. The upward trend is likely due in no small part to the recent hard fork “London,” which has reset the course for Ether issuance. For example, the first network effects of the Ethereum Improvement Proposal (EIP) 1559 integrated with London are already beginning to emerge.

EIP-1559 not only turned Ethereum’s fee policy on its head by introducing a uniform base fee dependent on block usage. It also built in a deflation mechanism, as these fees are not sent to miners, but burned, read: taken out of circulation. This switch, investors hope, should prove to be a key driver of prices as supply visibly tightens while demand remains the same or increases.

Ethereum inflation rate declines

As the on-chain data scientists at CoinMetrics write in their latest State of the Network report, “London” is also already bearing fruit. Since the fork, 18,000 ETH have already been burned, which is roughly 32 percent of the new supply created since then. How the burn mechanism is already throttling the Ether inflation rate can be seen in the chart below. On average, net issuance, or newly mined Ether including “tips” minus burned Ether, has been one to two ETH per block. In some cases, the net issuance has even slipped into negative territory. So, conversely, in some blocks more Ether was burned than was added by the Block Rewards.

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Ethereum inflation rate drops: 18,000 Ether burned since hard forkEthereum inflation rate drops: 18,000 Ether burned since hard fork<img src=” 700w,×460.png 537w” alt=” height=”600″ width=”700″ />Net balance per block, where one point represents one block. Source: CoinMetrics

NFT market drives up gas fees

The upgrade has not yet had an impact on gas fees. That’s not so much because of EIP-1559, but because of the newly ignited hype in the NFT market, which has seen a number of drops in recent days. On Thursday, the rushed token sale of the COVID edition of CryptoPunks sent fees soaring. According to CoinMetrics, the NFT smart contract alone led to the burning of 500 ETH in just one hour. As a result, net issuance has reached a deflation level of minus ten Ether.

Then on Friday, another surge occurred when Darien Brito’s NFT collection “Pigments” was released for sale on the Opensea trading platform. Just a day later, the rush for Fluf NFT bunnies would briefly clog the network and crank up gas fees to 700 GWEI. In the process, over 20 ETH were destroyed in a single block.

It’s no surprise then that NFT platform Opensea continues to top the ranking of largest gas consumers at around eleven percent. It is followed by Axie Infinity and Uniswap with seven percent each.