EIP-1559 has now burned over 1 million ETH worth roughly $4.3 billion.
EIP-1559 Hits 1 Million ETH Burned
Ethereum’s EIP-1559 update has taken over 1 million ETH out of circulation.
The number two crypto’s fee burning proposal shipped as part of the London hardfork on Aug. 5 and has rapidly diminished the supply of ETH amid a period of high activity on the network. EIP-1559 was introduced to make the cost of transactions more predictable as users were previously required to make a bid to miners to get their transactions added to a block. It added a base fee to every Ethereum transaction, which represents the minimum amount of gas that needs to be spent to add a transaction to a block (users can also add a tip for miners when they make a transaction). Crucially, the base fee gets burned with every transaction, in turn reducing the ETH supply.
According to data from ultrasound.money , Ethereum has now burned just over 1 million ETH at a rate of around 6 ETH per minute. The biggest contributor so far has been the NFT marketplace OpenSea with over 100,000 ETH burned, which can be explained by the growing interest in NFTs throughout this year. ETH transfers and trades on Uniswap V2 are ranked as the second and third biggest burners.
EIP-1559 has occasionally been compared to Bitcoin’s halving events, which reduce the supply of BTC paid to miners every four years. When Ethereum completes its merge to Proof-of-Stake, expected to land sometime in 2022, it’s estimated that EIP-1559 could offset issuance and potentially make ETH a deflationary asset. The deflationary pressure ETH has received as a result of EIP-1559 is what led Ethereum Foundation researcher Justin Drake to coin the meme “ultrasound money,” which references Bitcoin’s widely cited “sound money” narrative. As EIP-1559 hardens ETH’s monetary policy by reducing the circulating supply, it’s been a popular update in the Ethereum community.
However, it’s also faced criticism throughout the year. Many Ethereum miners vocally opposed the update before it went live, arguing that it prioritizes the price of ETH over the security of the network. More recently, Three Arrows Capital’s Su Zhu took shots at the community for celebrating the fee burn while gas fees on the network remain high. “It costs $2k to buy a domain name today. Thousands to deploy contracts. Simple send of tokens costs $50,” he wrote in a tweet, shortly after declaring that he had abandoned Ethereum due to the unsustainable fees. “This is dystopian and should be treated as such–instead it is celebrated bc of the fee burn. This is a rentier mentality and I think it’s dangerous.”
With OpenSea contributing the biggest burn rate so far, Ethereum’s token supply burn could accelerate when Coinbase unveils its NFT marketplace. The leading exchange announced it would be joining this year’s NFT boom with the launch of a new marketplace supporting Ethereum-based NFTs last month; it’s scheduled to go live before the end of 2021.
The London hardfork that introduced EIP-1559 was Ethereum’s last major update. Next up is “the merge,” which will see Ethereum mainnet dock to the Beacon Chain, marking a long-awaited move from Proof-of-Work to Proof-of-Stake. That’s expected to come in Q1 or Q2 of next year.