More ethereum has been burned that minted over the past day after the EIP-1559 upgrade which was supposed to bring deflationary pressure to the network as we are reading more in our latest Ethereum news today.
EIP-1559 was a code change that allowed transaction fees to be burned and placed deflationary pressure on Ethereum. This pressure helped to raise the price of ETH. When EIP-1559 has introduced to Ethereum a month ago, it was supposed to decrease the rate at which teh supply of ETH grows but over the past day, the supply of ETH didn’t grow at all but rather it started shrinking. More Ethereum has been burned on the network than it was minted in teh past day meaning there’s less ETH available today than there were a day ago and experts believe that this is the first time for the network.
ethereum getting close to its first day of deflation pic.twitter.com/4ULIbLt5aD
— 𝚂𝚌𝚘𝚝𝚝 𝙻Ξ𝚠𝚒𝚜 🌾 (@scott_lew_is) September 3, 2021
EIP-1559 was a proposed coding change to the blockchain which allows block sizes to expand so that more of the transactions could be sent via the network. The ETH network struggled with congestion thanks to the popularity of NFTs and Defi apps like lending protocol Aave and exchange Uniswap like tools that use up the network’s resources. Part of the proposal was to mandate a base fee for the transactions instead of the fees continuing to go to the miners that validate the network transactions as the base fee will get burnt. The idea here was to reduce teh total supply of ETH which unlike BTC has no cap. The price of Ethereum will rise to meet the demand in theory.
$ETH has had negative issuance over the last 24 hours due to EIP1559
— Evan Van Ness 🦇🔊 (@evan_van_ness) September 3, 2021
While EIP-1559 reduces the rate at which ETH supply grows, it doesn’t lower the supply of ETH and that’s because with each block produced, miners get to keep the newly minted ETH and as long as the amount of newly minted coins is higher than the fees burned, the overall supply of ETH increased but that’s not the case today. In a 24-hour period, the supply growth turned negative. More ETH was burned than the 12,500 to 13,000 that was issued to the miners. This can happen as the base fee adjusts upwards during the periods of higher demand for ETH transactions but as Defi pulse co-founder Scott Lewis and Evan Van Ness think, this is the first instance of ETH turning deflationary.