To move ETH to become a deflationary asset, and overhaul the Ethereum network’s transaction fee market and other parameters, including gas refunds, the London hardfork was implemented many months ago. The crucial upgrade also ushered in the Ethereum Improvement Proposal (EIP) 1559. 

High transaction fees are among the problems of the popular blockchain network. Therefore, EIP-1559 was rolled out and it centered on reforming the Ethereum gas fee market, by modifying the transaction fee limit and also introducing a token burning feature. 

With this burn feature, a portion of Ether’s total supply is removed from circulation permanently when any transaction takes place on the blockchain. 

Read Also: Over 13.3 Million ETH Now Staked in Ethereum 2.0 Contract as The Merge Nears

Over 2.6 Million ETH Removed From Circulation

According to data from Ultra Sound Money, 2,600,764.14 ETH has been burned or removed from Ether’s circulating supply, at the time of writing. Data also shows that 4.64 ETH is being burned per minute. It is speculated that more token burning, which leads to a reduced circulating supply would further boost the price of Ethereum. 

Outstanding decentralized platforms contributing hugely to this massive ETH burning include OpenSea, Uniswap V2, Tether, Otherdeed, MetaMask, and many more. It is worth noting that over 239,705.89 ETH have been taken out of circulation courtesy of gas fees from ETH transfers.

While OpenSea, the leading NFT marketplace has contributed a total of  230,049.97 ETH and counting to the total burn volume recorded ever since the implementation of EIP-1559. 

Read Also: Billionaire Mark Cuban Joins Ethereum Merge Backers, Says He’s Bullish on ETH

The Merge Build-up

Ethereum (ETH) has been steadily experiencing a decrease in price over the last couple of days despite the forthcoming upgrade. At the time of filing this report, Ethereum is trading for $1,452.66, recording a decline of over 7% in the last 7 days, according to Coinmarketcap data.  

The long-awaited upgrade is designed to transition the largest smart contract platform to a proof-of-stake (PoS) mechanism. The aim is to make running the network less energy-intensive as opposed to the current proof-of-work (PoW) mechanism. 

The merge is crucial because it’s coming to set the stage for further scalability features and upgrades. The Ethereum co-founder Vitalik Buterin noted that after the Merge, the network would only be 55% complete.

Therefore, certain issues like high gas fees and transaction speed would not substantially improve after the Merge upgrade on September 16.

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EIP-1559 aimed at increasing the mining speed of ETH and incentivizing it. The upgrade is basically meant to stabilize the high gas fees caused by the scalability issues frequently encountered by the Ethereum network.

Read Also: Ethereum Fees See Massive Drop on Layer-2s as a Transaction Now Costs Less Than $0.1

It’s also a way of bolstering the value of ETH, the native token of the Ethereum blockchain, and to help fight the inflation rate related to miner rewards.

1,965,216 ETH worth $5.2 Billion Burned So Far

According to the data provided by Watchtheburn.com, since the implementation of EIP-1559 in August 2021, relatively 1,965,216 ETH in base fees, worth $5.2 billion at current prices, has been burned.

This implies that over 1.9 million ETH has been permanently removed from the Ethereum circulating supply.

About a month after EIP-1559 was implemented, the upgrade only managed to burn around 297,000 ETH. According to the data shared above, the number of ETH burned has since increased by 559%.

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Since EIP-1559 is majorly associated with the burning of transaction fees on the Ethereum network, the figure is largely attributed to the increase in the demand for non-fungible tokens (NFTs) and decentralized finance (DeFi).

The number of coins burned so far is now closer to the target number expected to be burned within a year of the EIP-1559 implementation, which is 2,560,000 ETH.

The number burned so far represents 76% of the target number of ETH predicted to be burned by August 2022.

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This was made known via Polygon’s official Twitter handle on 11th January. According to the report, the upgrade, which will activate the burning of Polygon’s native token MATIC, is scheduled to launch on the mainnet on 18th January 2022.

Read Also: Polygon Evolves In Its Quest to Lead Ethereum-Scaling Solution Race with the Latest Acquisition Worth $500 Million

Polygon tweeted, “After the successful EIP-1559 upgrade on Mumbai Testnet last year, the much-awaited London Hardfork on Mainnet is here! EIP1559 and related EIPs will be activated on the Mainnet on 18th Jan around 3 AM ET / 8 AM UTC.”

After the successful EIP-1559 upgrade on Mumbai Testnet last year, the much-awaited London Hardfork on Mainnet is here!#EIP1559 and related EIPs will be activated on the Mainnet on 18th Jan around 3 AM ET / 8 AM UTC.

Find out more: https://t.co/TgZQtbCO98 https://t.co/dZ97nTUNTO

— Polygon | $MATIC (@0xPolygon) January 11, 2022

Ethereum Improvement Proposal (EIP) 1559 aims to change the fee market mechanism on the Ethereum network. The upgrade basically eliminates the first-price auction as the main gas fee calculation.

Read Also: Vitalik Buterin: Layer 2 Is the Only Safe Way to Scale Ethereum and Preserve Decentralization

In first-price auctions, people bid a set amount of money to pay for their transaction to be processed, and the highest bidder wins. With EIP-1559, there will be a discrete “base fee” for transactions to be included in the next block. For users or applications that want to prioritize their transaction, they can add a “tip,” which is called a “priority fee” to pay a miner for faster inclusion.

Although the EIP-1559 upgrade doesn’t lower transaction fees, it allows users to estimate costs better and reduce the number of users that are overpaying.

The upcoming upgrade is expected to have a wide effect on the Polygon community, which includes developers, MATIC holders, validators, and delegators.

Read Also: Ethereum Launches First-Ever Public Testnet for Full Upgrade to Proof of Stake Known as “The Merge”

It’s also expected to have a deflationary effect on the digital token MATIC since there will reduction in its fixed supply of 10 billion tokens due to the burn.

According to the core team behind the project, the upgrade is expected to destroy relatively 27 million MATIC in a year.

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According to Vitalik Buterin in a recent blog post, Ethereum currently utilizes a scheme in which the same amount of gas is being used for different needs on the network. For example, average transaction data and calldata spend only 3% of the gas on a block, while a “worst-case” block contains 67x times more data.

Read Also: Coinbase Executive: I Am Optimistic About Major Ethereum Scalability Improvements In 2022

The usage of a single resource for both worst-case and average-case scenarios does not work optimally. Put simply: users of the Ethereum network pay more when they could pay less for an operation on the network.

The new fee concept will create a fair structure in which gas will be used more optimally, giving users the means to spend less on various types of operations like minting, transactions calldata, and more.

Vitalik Buterin Suggested Two Ways of Realizing the New Fee Structure

Vitalik Buterin has suggested two ways of realizing the new fee structure on the network: the gas execution cost remains fixed and the operating costs depend on the type of resource used. This will divide the base fee for each unit of the resource by the total base fee.

Read Also: Microsoft Executive: Ethereum Will Become the Decentralized App Store By 2023

According to Buterin, the second “purer” option requires the implementation of a fixed base fee and unlimited block gas. Priority fees paid to those who produce blocks on the network equals base fees plus a percentage.

In addition to a more sufficient fee structure, the update will add another layer of protection to the network. It remains to be seen whether the proposal will be passed since the priority at the moment is the next big upgrade.

The Ethereum network is currently preparing for “the merge,” which will dock the Ethereum blockchain with the Beacon Chain and effectively end its use of the proof-of-work (PoS) consensus algorithm. Testing is already underway on the Kintsugi testnet, and full deployment is expected in the first quarter of this year.

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After the implementation, the miners’ fee that was previously used to reward miners for moving transactions was changed to a base fee. Now, miners can only be rewarded at users’ discretion via a tip, while the base fee is burned continuously.

Read Also: Vitalik Buterin Stresses Major Difference between Ethereum (ETH) and Bitcoin (BTC)

With an increased number of transactions on the Ethereum network on a daily basis, more coins are getting burned, which increasingly makes Ethereum a deflationary asset with more coins burned than distributed.

The Ethereum network has spent just three months burning relatively $4 billion worth of ETH. Thanks to the non-fungible token (NFT) and decentralized finance (DeFi) industries, the burn rate on the network has been steadily increasing, which led to the recent milestone.

Read Also: Ethereum 2.0 Merge Interoperable Devnet Activated. Here’s Why This Is Important

Ethereum (ETH) Supply on Exchanges Falling

Over the past few months, especially, since the burning started, Ethereum (ETH) supply on crypto exchanges has been consistently falling. This suggests that the digital asset’s price could see more positive price action in the coming months.

Lark Davis, a popular crypto investor, shared this notable development a few days ago on his Twitter handle.

He wrote, “Ethereum supply on exchanges just keeps falling, $10,000 will come a lot quicker than most people expect!!!”

#ethereum supply on exchanges just keeps falling, $10,000 will come a lot quicker than most people expect!!! pic.twitter.com/7UrZTrZdTy

— Lark Davis (@TheCryptoLark) November 20, 2021

Read Also: Ethereum Foundation Confirms Date of First-Ever Ethereum 2.0 Upgrade Named Altair

How the market reacts

While, in general, the market has positively reacted to the implementation of a burning mechanism that resulted in 74% growth from 1st October to 9th November. After reaching the most recent all-time high, Ethereum has dipped by 11% due to the global crypto market correction.

In the last week, Ethereum’s price has been ranging from approximately $4,100 to $4,200 in correlation with other major cryptocurrencies, moving with lower volatility compared to the previous week.

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EIP-1559 Introduces Burning Mechanism

Following the implementation of Ethereum Improvement Proposal (EIP) 1559 in early August, the fee-burning mechanism became effective on the Ethereum network.

Read Also: Raoul Pal Reveals Why His Crypto Portfolio Is 70% Ethereum (ETH) and 5% Bitcoin (BTC)

After the implementation, the miners’ fee that was previously used to reward miners for moving transactions was changed to a base fee. Now, miners can only be rewarded at users’ discretion via a tip, while the base fee is burned continuously.

With an increased number of transactions on the Ethereum network on a daily basis, more coins are getting burned, which increasingly makes Ethereum a deflationary asset with more coins burned than distributed.

Read Also: Ethereum Foundation Confirms Date of First-Ever Ethereum 2.0 Upgrade Named Altair

Market Effect of the Fee-Burning Mechanism

As the number of coins present on the Ethereum network is constantly decreasing with the presence of a fee-burning mechanism, it is expected to have a positive effect on the price of the digital token ETH in the market.

With constantly reducing supply and fast-rising demand, traders and investors are liable to accumulate an asset while expecting a price increase. This has been the case for Ethereum (ETH) in the market.

With Ethereum’s 26% growth in October, the effect of the feed-burning has clearly been positive. After the implementation in August, Ethereum (ETH) experienced over a 20% surge in price but later lost its surging momentum.

Read Also: Big-Money Investors Are Dumping Bitcoin (BTC) For Ethereum (ETH) –JPMorgan Analyst

At the time of press according to CoinMarketCap, ETH is trading at $3,517.30, with a relatively 2% price upsurge in the last 24 hours.

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At the time of writing, according to ethburned.info, 289,063 ETH worth $981,400,000 at current prices has been burned. It also shows that 198 ETH was burned in the last hour.

Read Also: Over $400 Million Worth of ETH Now Burned by Ethereum EIP-1559

The non-fungible token (NFT) marketplace, OpenSea, continues to burn most ETH. And simple ETH transfers continue to secure the second position, burning relatively 24,000 ETH worth $80 million at current prices.

This can be attributed to the fact that simple fees briefly reached $150 at one point during the dYdX airdrop, which cost about $1,500 to claim. Things have now become normal with simple fees at about $3. This implies that the rate of burning ETH varies depending on network demand.

Read Also: David Gokhshtein Says Ethereum (ETH) Is Poised To Hit $14,000 and Dogecoin (DOGE) To $1

The rate of burning may also depend on the level of usage of second layers which could take out some transactions that otherwise would have burned ETH.

Lark Davis: The Economics of Ethereum (ETH) Are Rocket Fuel

Lark Davis, a popular crypto pundit, has recently stated that the current economics of Ethereum (ETH) is rocket fuel, referencing the nearly $1 billion of ETH already burned due to the implementation of EIP-1559. He added that the much-anticipated event called The Merge will boost Ethereum economics even more.

Read Also: Vitalik Buterin Speaks On Likely Date of The Merge and What Happens After the Two Ethereum Chains Are Merged

Lark Davis tweeted, “We’re almost at a billion dollars of ethereum burnt due to EIP 1559. Thus there has been a billion less in sell pressure from miners. The economics of Ethereum are rocket fuel, and it will only intensify when The Merge happens and we switch from mine and dump to stake and save.”

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The network attained the notable height at about 10 AM UTC on Sunday, after removing a total of 124,865 ETH from circulation. At the time of writing according to Ethburned.info, a total of 133,672.66 ETH has been burned by the Ethereum blockchain, while 341.31 ETH has been destroyed in the last hour.

Read Also: Ethereum Network Now Burns $10,000 per Minute after EIP-1559 Implementation

On 5th August 2021, EIP-1559, the upgrade that has been aiding the burning of ETH, was implemented along with the London Upgrade. The upgrade is targeted at stabilizing the volatile transaction fees of Ethereum (ETH) and hastening the transition to Ethereum 2.0, the next generation of the Ethereum blockchain.

With the implementation of EIP-1559, mining on the Ethereum network has become notably unprofitable compared to the way it used to be. Now, fees are completely destroyed instead of enriching Ethereum miners that validate transactions.

Read Also: Gemini: Ethereum (ETH), Cardano (ADA) Top the List of Investments of Choice in Singapore

However, miners can still be paid to speed up transactions, but such a tip is now optional for users.

When Ethereum 2.0 is fully launched, miners will no longer be needed on the network. They will be replaced by proof-of-stake (PoS) validators. However, the much-awaited transition may not play out until early next year.

What Will Ethereum 2.0 Do?

Ethereum 2.0 is coming to change the way Ethereum transactions are processed. Under the current proof-of-work (PoW)’s system, miners have the right to validate transactions with their most powerful computers.

Read Also: Analyst Predicts Ethereum Notable Breakout, Says Bitcoin Would Hit New All-Time High by November

On the other hand, under the anticipated PoS consensus algorithm, validators win the right to validate transactions if they pledge the most ETH. Also, the upgrade is expected to make Ethereum blockchain 99.5% more environmentally friendly.

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A few hours ago, the second-largest digital currency by market capitalization, Ethereum (ETH), reclaimed the $3,000 support level for the first time since May, according to CoinMarketCap.

Read Also: CryptoCapitalVenture Founder Says Cardano Will Eventually Flip Ethereum, Benjamin Cowen Has A Bit Different Opinion

On 12th May 2021, Ethereum (ETH) recorded its price all-time high of relatively $4,300. However, the cryptocurrency later embarked on a steep decline, hitting a bottom at around $1,740 in the process.

London Upgrade and EIP-1559 Implementation Have Been Attributed To the Massive Surge

On 5th August, London hard fork and EIP-1559 were deployed on the Ethereum network and the effect of the upgrade became obvious just a few hours after the implementation.

Most importantly, since the implementation became official, Ethereum (ETH) has been gaining significantly in terms of price. And this is also impacting the whole crypto market positively, pushing Bitcoin (BTC) to revisit the $44,000 level for the first time since May.

Read Also: Analyst: If March 2020 Fractal Holds, Ethereum (ETH) Could Hit $14,000 In 2021

Many crypto analysts and big guns have been positive in relation to the trend of Ethereum (ETH). There have been bullish predictions and this is expected to continue as the network keeps evolving.

At the time of writing, Ethereum (ETH) is trading at $3,082.26, with an 11.26% price upsurge in the last 24 hours.

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Another notable enhancement that came with the London upgrade is the implementation of the Ethereum Improvement Proposal (EIP) 1559. With this implementation, a portion of all transaction fees, called the base fee, is now destroyed in each block, instead of going to miners.

Read Also: Analyst Predicts Ethereum Notable Breakout, Says Bitcoin Would Hit New All-Time High by November

Why is EIP-1559 Necessary Now?

Based on the description of EIP-1559 on Ethereum’s official website, it’s designed to offset Ethereum inflation, while still giving the block reward and priority fee to miners.

At the time of filing this report according to Etherchain.org, approximately 3.7 ETH are being destroyed on the Ethereum network per minute after the improvement proposal went live.

Just a few hours after the London upgrade was deployed officially, 630 ETH worth relatively $1.77 million at current prices were burned, while the base fee has been changing hands between 70 Gwei ($5.84) and 100 Gwei ($8.34) over the same period.

Read Also: Ethereum 6th Birthday: Spencer Noon Analyzes ETH Network “Ridiculous Growth” in 6 Years with 4 Charts

The largest burner of ETH currently is OpenSea, the popular non-fungible (NFT) marketplace. It has singlehandedly burned 69 ETH worth around $193,000 over the past hours, according to Ultrasound.money.

Outflow of Positive Sentiments

Since the upgrade went live officially, there has been an outflow of positive sentiments in relation to Ethereum’s development from experts and community members.

Reacting to the latest development, the chief financial officer at decentralized crypto exchange DeversiFi, Ross Middleton, in an email to Decrypt, said:

“The much anticipated EIP1559 network upgrade was a huge day for the Ethereum cryptocurrency ecosystem. Now, every transaction, NFT purchase or loan on the Ethereum network will result in ETH being burned out of existence, making ETH a deflationary and inflation-busting asset.”

Middleton further added that the new mechanism of burning ETH is similar to how it works in the traditional stock markets. He wrote, “Apple Inc burning AAPL shares every time someone bought something from the Apple App store or made an in-app purchase.”

Read Also: Here’s What Is Next for Ethereum (ETH) and VeChain (VET) As Mapped out by Crypto Michael

Ethereum (ETH) in the market

Since the London hard fork was deployed along with EIP-1559, the trend of Ethereum (ETH) in the market has been positive as expected.

At the time of filing this report, ETH is trading at $2,804.98, with a relatively 4% price upsurge in the last 24 hours.

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