Less than a week after the long-awaited hard fork “London”, the first effects of the EIP-1559 are already evident. Around 18,000 ethers have now been burned. The supply throttling could prove to be a price driver.
Ethereum is currently on a run. In just two weeks, the second largest cryptocurrency has risen by a remarkable 40 percent and thus by almost 1,000 US dollars. The upward trend is likely to be due not least to the recent hard fork “London”, which has set the course for the Ether issue. The first network effects of the Ethereum Improvement Proposal (EIP), which was integrated with London, are already emerging in 1559.
The EIP-1559 has not only turned Ethereum’s fee policy on its head by introducing a uniform basic fee that is dependent on block utilization. It also has a deflation mechanism integrated, as these fees are not sent to miners, but rather burned, i.e. withdrawn from circulation. This change – so the hope of investors – should prove to be a major driver of the share price, since the supply becomes increasingly scarce if demand remains the same or increases.
Ethereum inflation rate is falling
Like CoinMetrics’ on-chain data researchers in the current State of the Network-Report write, “London” is already bearing fruit. Since the fork, 18,000 ETH have already been burned, which corresponds to around 32 percent of the newly mined supply volume since then. How the combustion mechanism is already throttling the ether inflation rate can be seen in the following graphic. On average, the net issue (net issuance), i.e. the newly mined ethers including “tips” minus the burned ethers, was one to two ETH per block. In some cases, the net output has even slipped into negative territory. Conversely, more ether was burned in some blocks than was added through the block rewards.
NFT market drives up gas fees
The upgrade has not yet had any effect on the gas fees. But this is less due to the EIP-1559. This is due to the newly inflamed hype on the NFT market, where there have been a few drops in the past few days. On Thursday, the overrun token sale of the COVID edition of CryptoPunks drove up fees. According to CoinMetrics, the NFT Smart Contract alone resulted in the burning of 500 ETH in just one hour. As a result, the net issue has reached a deflation level of minus ten ethers.
On Friday there was another increase when the NFT collection “Pigments” by Darien Brito on the trading platform Opensea has been released for sale. Only a day later, the rush for the Fluf NFT bunny temporarily clog the network and boost gas charges to 700 GWEI. Over 20 ETHs were destroyed in a single block.
So it’s not surprising that the NFT platform Opensea the Ranking of the largest gas consumers continues to lead with around eleven percent. This is followed by Axie Infinity and Uniswap, each with seven percent.