A deflation that surprises everyone – The Ethereum (ETH) network has seen several major updates during 2021. The implementation of EIP 1559 introduced a mechanism for destroying part of the transaction fees. Since then, ETH issuance can prove to be deflationary during periods of high network usage.
350 million dollars burned in 7 days
In early August 2021, the Ethereum network fee system was changed with the deployment of L’EIP 1559, following the hard fork london. This EIP introduced a destruction systematicpart of the cost transactions on Ethereum. Since its deployment, more than 1.4 million ETH have been destroyed by the network. This represents a little less than $5 billion at the current price.
Last week, the network experienced a renewed use which once again drove up transaction costs. So much so that Ethereum ended up deflationary.
Indeed, in the last 7 days, the network has destroyed 104,508ETH, while only 95,073 new ETH were issued by the mining process. Therefore, Ethereum presents a 10% deflation rate over this same period.
A godsend for all holders who have also benefited from a 4% increase of the price of ETH during the last 24 hours.
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Uniswap: the glutton for fees
Obviously, the vast majority of this destruction of ETH occurs through interaction with smart contracts. Indeed, these interactions turn out to be the most fee-intensive and, therefore, the most destructive of ETH.
In 2021, Uniswap was the protocol most expensive. Indeed, this one was at the origin of on average 30 % fees spent on Ethereum.
It is followed by the protocol OpenSea, which has just ended the year at 30 % of global gas consumption, although it only represented 1% of activity on chain during the year 2021.
Third place is occupied by 1inch, whose share fell slightly at the end of the year.
Ethereum 2.0 is coming soon: Fees don’t care
The community as a whole is eagerly awaiting the deployment ofEthereum 2.0. Indeed, The Merge, the mechanism that aims to link the application layer of Ethereum 1.0 to the consensus layer of Ethereum 2.0 has been announced for June 22.
Unfortunately, the transition to proof of stake should have almost no impact on fees of transactions. Indeed, we will have to wait for the deployment of Sharding, which should increase network performance by a factor of 10,000.
In the meantime, users have no choice but to fall back on the second layer solutions.
Anyway, the fees could be revised downwards following a new modification of the fee system in 2022. This was proposed last week by Vitalik Buterin.