Ethereum is heating up quite a bit: Ethereum's "London" hard fork, a long-awaited network upgrade that includes a measure to reduce ETH supply growth, went live last Thursday. With it active, EIP-1559 - an upgrade that includes a mechanism to burn Ethereum transaction fees. Since then, the price of ETH has soared.
Ethereum burns massive fees
What a difference a week makes. Since the "London" hard fork, over $100 million of ETH has been burned or withdrawn from circulation. This has led to a price increase from US$2,725 to US$3,230, data from Nomics shows.
The London upgrade included a total of five code changes, but the most talked about was EIP-1559. The "Ethereum Improvement Proposal" changed the transaction fee structure for the network. Instead of fees going directly to the miners who process and validate the transactions, a base fee now goes to the network and is immediately wiped out.
While EIP-1559 was also a way to improve the user experience by automating transaction prices and making the auction process more understandable, the update's main effect is to fuel demand by reducing supply.
While Bitcoin was created with a supply cap of 21 million BTC, Ethereum has no such cap. EIP-1559 therefore exerts a deflationary pressure. With each new transaction block added to the blockchain, new ETH coins are created that go to a miner as rewards. However, some ETH is withdrawn via fees.
According to the website ultrasound.money, around 31,000 ETH have already been destroyed. As it stands, that's just over $100 million - although of course it's not known how much ETH would be worth if these assets hadn't been burned.
10% accounted for by NFT marketplace OpenSea
More than 10% of the fees burned came from transactions on the NFT marketplace OpenSea. Here people can sell or bid for digital collectibles and artworks. The decentralised barter exchange Uniswap and the blockchain-based game Axie Infinity follow in second and third place in terms of burn rate.
Those who like the smell of fire will also likely be excited about Ethereum's upcoming shift from a proof-of-work consensus algorithm to a minerless proof-of-stake network. Due to the structure of Ethereum 2.0, the overall supply of ETH may actually decrease as more fees are burned than created.
You can almost hear them, the shouts of the Ethereum bulls: "Burn, baby, burn".