EIP-1559 was supposed to bring deflationary pressure to the network. It's working.
Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
More Ethereum Has Been Burned Than Minted in the Past 24 Hours
Decrypt | Jeff Benson | Sep 3, 2021
EIP-1559 was supposed to bring deflationary pressure to the network. It's working.
In brief
- EIP-1559 was a code change that allowed transaction fees to be burned.
- That's placed deflationary pressure on Ethereum.
- The pressure has helped raise the price of ETH.
When EIP-1559 was introduced to Ethereum last month, it was supposed to slow down the rate at which the supply of ETH grows. But over the last 24 hours, the supply of ETH isn't growing at all. It's shrinking.
More Ethereum has been burned on the network than minted over the last 24 hours, meaning there's less ETH available today than there was yesterday. Ethereum experts believe this is a first for the network.
See: The London Hard Fork is a big step towards Ethereum 2.0’s major upgrade
While EIP-1559 reduces the rate at which ETH supply grows, it does not necessarily lower the supply of ETH. That's because, with each block produced, miners still get to keep the newly mined ETH. As long as the amount of newly mined ETH is higher than the base fees burned, the overall supply of ETH increases.
That's no longer the case, at least today.
In a 24-hour period spanning Thursday and Friday, the supply growth turned negative. More ETH was burned than the 12,500 to 13,000 ETH being issued to miners. This can happen as the base fee adjusts upward during periods of higher demand for Ethereum transactions.
Since the code change went into effect on August 5, over 188,000 ETH has been burned, according to EIP-1559 tracking website Ultrasound Money.
The change has directly fueled a price rise for the currency. Ethereum has climbed from $2,516 on August 4 to $3,926 today—a 56% increase in one month.
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