The highly anticipated Ethereum London upgrade went live on Aug 5 and is already burning millions of dollars worth of the digital asset.
London was deployed on Aug 5 ushering in the long-awaited EIP-1559 and its upgrades to the transfer fee mechanism. Part of the base fee now gets burn as a result and the process has been running smoothly in the hours after launch.
Several trackers have been deployed to monitor this constant burning of Ethereum. Etherchain was reporting a total cumulative burn of 3,630 ETH at the time of press, less than 24 hours after the upgrade was deployed. This is worth approximately $10 million at current prices.
With an estimated current burn rate of 2.47 ETH per minute, the network could destroy 3,500 tokens per day.
Sustained blockspace demand
This ongoing destruction of Ethereum tokens will have an impact on the supply and issuance over time. The economics will remain inflationary while the asset is still being mined. This is likely to change when it switches to proof-of-stake which will reduce block reward issuance. After that, the issuance is likely to become deflationary due to the continued burning of a portion of the transaction fees.
The Ethereum blockspace has surged this year with the ongoing DeFi and NFT boom and a crypto bull market. The network has come under so much demand that average transaction fees surged to an all-time high of $70 on May 12. Peak prices for gas for smart contract operations skyrocketed to hundreds of dollars.
Network demand has slowed to more sedate levels but gas is still a steep $15 on average according to BitInfoCharts. This is a lot of potential ETH that will now go up in smoke.
Millions of Ethereum to burn
Ben Giove, President of Chapman Crypto, has been crunching some numbers and running some hypothetical scenarios on the Bankless newsletter. The base fee fluctuates per block so it is difficult to make accurate predictions as it can be anything from 25% to 75% of the total transaction fee.
He used the same 25% to 75% burn rates, stating that if were EIP-1559 was in effect, between 467,000 and 1.4 million ETH would have been burned year-to-date in 2021. Annualizing these figures results in a number between 800,000 and 2.4 million ETH projected to be burned in 2021.
In dollar terms, at current ETH prices of $2,760, this is between $2.2 billion and $6.6 billion.
These are just highly variable estimates, but it does emphasize the potential effects that this week’s upgrade will have on Ethereum supply and issuance going forward.