A highly anticipated Ethereum London upgrade took place yesterday at block 12,965,000 and over $10 million worth of ETH has already been burned after that. The upgraded ETH network is currently burning 2.46 ETH (~$7k) every minute on average.
London upgrade brought many changes to the Ethereum network including the Ethereum Improvement Proposal (EIP) 1559 which aims to change the way transaction fees, or “gas fees,” are estimated. Earlier, users making transactions use to bid for how much they’re willing to pay to have their ether transaction picked up and settled by a miner, which can be at times extremely costly if there are large transactions in the pipeline or there is network congestion. But with EIP-1559, this process is handled by an automated bidding system with a set fee amount that fluctuates based on how congested the network is.
Another major change that was proposed in EIP 1559 is that part of every transaction fee will be burned, or removed from circulation, which will begin to reduce the supply of ether and potentially boost its price. According to the proposal’s description, this was done to counterbalance Ethereum inflation while still giving the block reward and priority fee (the maximum fee users are willing to spend to include their transaction in a block) to miners.
As per the data received from Etherchain.org, the current burn rate is 2.46 ETH/min (~$7k USD) on a 24 hours average and a total of 3547.1 ETH (~$10 million USD) have been burned and removed from supply so far. The base fee has fluctuated between 25 Gwei and 50 Gwei over the past hour.
While the network is currently burning ETH at a higher rate but it won’t necessarily continue like this. As per our analysis, the upgrade enables the network to adapt to moments of higher demand. So when there are more transactions, there is a higher base fee (the part that gets burned) and more ETH gets burned. But once the network goes quiet, less ETH gets burned.
Right now the network is processing all the transactions held in the backlog (mempool) and once it gets cleared, which should happen soon, blocks will become smaller, demand will be lower and the base fee will also likely drop.
As per the data shown by ultrasound.money, the popular NFT marketplace OpenSea turns out to be the largest ETH burner and has burned over 400 ETH (~$1.1 million USD) alone followed by Uniswap V2, the decentralized finance protocol, that has burned over 280 ETH (~$800k USD).
So far experts and community members have shown positive sentiments toward the new London upgrade which makes Ethereum a deflationary and inflation-busting asset. However, the price of ETH itself has not been affected by this upgrade, and at press time, ETH was traded at around $2786, just 2.7% up in the last 24 hours.
CoinShares chief strategy officer Meltem Demirors says that while EIP-1559 is a very significant upgrade to the Ethereum network that strengthens the ecosystem of Ethereum, it alone may not have any short-term impact on ether price because the EIP-1559 proposal alone will not make ether deflationary. However, he believes that it has a more long-term impact when combined with the PoS model that is also under progress and possibly will be rolled out in early 2022.
“Taken together, EIP-1559 and the move to PoS will have a major impact on miners and the economics of Ethereum, but at the moment, the upgrade alone does not.”CoinShares chief strategy officer Meltem Demirors
However, it is important to know that Ethereum is not only the most used blockchain which is known for its smart contract capabilities that power DeFi (decentralized finance) and NFTs (nonfungible tokens), among other things but it is still an actively developed project which refuses to stagnate and becomes obsolete. Ethereum has always shown strong community support, adoption and will have a bright future going forward.