Ethereum’s fee burn crossed the 50,000 milestone over the weekend. The burn has now been on for 11 consistent days and at this point, there has been over 53,000 ETH burned. Amount to almost \$70 million worth of ETH taken out of circulation. Each passing day sees an increased burn rate. The burn rate had averaged a little over 3 ETH for most of last week. But as this new week is ushered in, the burn rate has jumped over to 4.56 ETH per minute burned in the last 24 hours.
EIP-1559 continues to burn out about 30% of ETH created for each new block mined. A move that has seen some blocks on the network become deflationary due to the amount of ETH burned. The goal remains to make ETH completely deflationary following the launch of ETH 2.0.
This has led to a shift in focus for investors. Now, with this new fee burn mechanism in full effect, the market has turned its attention to Ethereum as investors wait to see how the upgrade plays out in relation to ETH supply in the market.
Why EIP-1559 Remains An Important Upgrade
When the Ethereum network was first created, its native token, ETH, was made to have an unlimited supply. This was the opposite of the leading cryptocurrency, Bitcoin which had a limited supply of 21 million.
At first, this unlimited supply did not seem to be a problem for investors. Within years, the cryptocurrency had grown to be the number 2 asset in the market. But with inflation remaining at the forefront of investors’ minds, it has become important for there to be a solution to the unlimited supply ETH possesses.
This is due to market economics. A product with unlimited supply is more likely to have less value than a product with a limited supply. And an unlimited supply means an asset is inflationary. Hence, defeating one of the main uses of cryptocurrency; to act as an alternative currency that would be able to combat the effects of inflation. This is where the Ethereum EIP-1559 enters the picture.
Instead of giving all of the new ETH coins created per mined block to miners, EIP-1559 takes about a third of that volume and sends it to a dead wallet - a wallet whose private keys are unobtainable. Essentially taking the coins out of existence by ‘burning’ them. This reduces the amount of ETH being circulated into the market.
This upgrade changes the entire monetary system of the Ethereum network. And once the number of ETH being burned exceeds the amount being created, then Ethereum will become truly deflationary.
ETH Price Holding Steady
As ETH burns, the price has held its own in the market. Momentum remains up despite weekends usually being low points of trading as traders take a break during the weekend. While the asset saw dips during the weekend, the price has since recovered. With the weekend low being in the low $3,000s, while current price trends remain above $3,200 for the time being.
ETH remains the unshakable second in the market, sporting a 19% market dominance. While the market cap of ETH nears \$400 billion for the first time since the asset came crashing down from its all-time high back in May.