The Impact of EIP-1559 Continues as ETH Sees Its First Deflationary Day

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The Impact of EIP-1559 Continues as ETH Sees Its First Deflationary Day

Key highlights:

  • On September 3, there was more ETH burned than issued
  • ETH is being burned with every block thanks to EIP-1559
  • Almost 214,000 ETH has been burned since EIP-1599 was introduced

EIP-1559 keeps on burning ETH

Ethereum’s London hard fork came into effect on August 5, and the price of ETH is up about 40% since. The hype surrounding NFTs and the continued growth of DeFi were likely the biggest contributors to this growth, but the sentiment for Ethereum has also been improved significantly thanks to EIP-1559 and the deflationary pressure it contributes to ETH.  

EIP-1559 reworked Ethereum’s fee marketplace and introduced a variable block size to Ethereum. After EIP-1559, user making a transaction have to pay a base fee, which is adjusted according to the block size (which itself changes depending on demand for block space). The ETH paid for this base fee is burned (permanently removed from circulation), but users also have the option to include tips for miners to have their transaction prioritized. With EIP-1559, miners are compensated through the block reward and tips. 

According to ultrasound.money, the current pace at which ETH is being burned thanks to EIP-1559 translates to a yearly burn rate of 2.4 million ETH. The current ETH issuance rate is about 5.4 million ETH per year. 

When demand for the Ethereum network is very high, there can be periods where more ETH is being burned than issued. This happened on September 3 according to ETH Burn Bot, a Twitter account that automatically provides updates about ETH burns. 

In the 31 days since EIP-1559 has been live, a total of 213,867 ETH has been burned, and the number is growing with each block that’s added to the Ethereum blockchain. Per ultrasound.money, NFT marketplace OpenSea has so far been the biggest contributor, as it was responsible for 33,251 ETH being burned. Normal ETH transfers (18,050 ETH) and Uniswap V2 (12,387 ETH) are the next biggest ETH burners. 

Token burns are usually seen as positive by investors, as they effectively decrease the supply of ETH that’s available on the market. The increased scarcity provides some positive pressure on prices, although token burns alone generally aren’t enough to increase the price of crypto assets over the long term. We’ve seen evidence of this from various “hyper-deflationary” tokens, which haven’t been able to reach long-term success.

Peter has been covering the cryptocurrency and blockchain space since 2017, when he first discovered Bitcoin and Ethereum. Peter's main crypto interests are censorship-resistance, privacy and zero-knowledge tech, although he covers a broad range of crypto-related topics. He is also interested in NFTs as a unique digital medium, especially in the context of generative art.

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