The theoretical deflationary characteristics of the London Ethereum update last week have already played a role on the blockchain, resulting in the production of about 800 “deflationary blocks”. The soaring burn rate of Ethereum transaction fees has led to deflation of at least two hours of supply. In the past few days, the network has been heavily used, resulting in more gas being burned. As of 22:00 UTC, ETH Burn Bot recorded a case where 545 ether (ETH) was burned within just an hour.
With the release of Ethereum at a rate of 532 ETH per hour, assets have shrunk by minus 13 ETH in a short period. ETH Burn Bot detected more intense deflationary burns a few hours later. In that, 945 tokens were burned within an hour. This resulted in a temporary negative issuance of -417 ETH. Later this was calculated as an average annual deflation rate of 3.12%.
When the amount of ETH burned exceeds the mining reward, deflationary blocks are created and the supply is temporarily reduced. This can be seen in the tracker of the advisory firm Carbono. The firm is at present reporting that there are 791 deflationary blocks and thus identifying them as blocks whose burn rate exceeded the mined ETH.
Ethereum Transaction Fees And Burn Rate
When the London hard fork started on Thursday, it revealed the long-awaited Ethereum Improvement Proposal (EIP) 1559 upgrade which changed the way transaction fees are calculated. To some extent, this adjustment introduces a mechanism that can eliminate some of the basic fees charged. According to the data provided by ultrasound.money, 25,600 ETH has been burned. It is equivalent to approximately US$80 million in less than a week at the current price. Ultrasound.money tracks the amount that is burned. It is expected that the Ethereum economy will not experience long-term deflation until sometime in 2022. The increase in fees is combined with the reduction in block rewards resulting from the merger of proof-of-stake.
However, the news is not entirely good news for Ethereum users, as gas prices are rising once again. According to data from BitInfoCharts, the average transaction price rose from a low of around US$4 to US$20 at the end of July. Etherscan’s gas tracker is currently reporting as much as $28.60 for a token swap on Uniswap. The sudden rise in the demand for Ethereum block space is driven by NFTs. Now, even the OpenSea marketplace, Gala Games’ Vox, and Axie Infinity have entered the list of the top four gas-burning platforms. When combined, they all have burned a total of 2,200 ETH or $7 million so far.
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