After the Ethereum London upgrade, EIP-1559 began to work. The proposal establishes a fee model of “basic fee + tip”. Each transaction user needs to pay a fixed basic fee. If you need to speed up transaction confirmation, you can pay a tip to the miner. The tip belongs to the miner, and the basic fee will be completely destroyed.
In the four days of the implementation of the new fee model, the gas fee of Ethereum has not been significantly reduced, but the continuous burning of ETH has brought rising performance to the market.
According to data from Ouke Cloud Chain, as of 3 pm on August 9, the total amount of ETH burned reached 16,440.67. At the current rate, Ethereum is expected to burn 1.62 million ETH each year, and its annual inflation rate will be reduced from 4.4% to 2.9%.
The decline in the production of ETH due to continuous destruction has been compared with the halving of Bitcoin’s production in the industry. From the perspective of market trends, ETH first fell and then rose after the upgrade in London, reaching a maximum of 3190 US dollars, a strong rebound of 85.46% from the July low of 1720 US dollars. This price performance reflects the optimistic expectations of the market.
At the same time, the pledge of ETH 2.0 reached 6,587,900 ETH on August 8. The “lock-up” of these assets further reduced the market’s circulation. Jiang Zhuoer, founder of Lebit Mining Pool, believes that ETH has become a four-in-one super asset of “stored value assets + deflationary assets + interest-bearing assets + means of production”. In his view, it is only a matter of time before the market value of ETH surpasses BTC.
EIP-1559 is activated and burns 0.67 ETH per block on average
On August 5th, the Ethereum London upgrade was officially completed, and the high-profile EIP-1559 proposal also began to take effect on the Ethereum mainnet.
EIP-1559 changed the fee model of Ethereum. In the version before the London upgrade, users need to increase the price to pay the miner’s fee in order for miners to package their transactions in time. The higher the bid, the greater the probability of being packaged first, which will cause the gas fee to increase indefinitely to a certain extent. EIP-1559 has set up a fee model of “basic fee + tip”. Each transaction user needs to pay a fixed basic fee. If you need to speed up transaction confirmation, you can pay a tip to the miner. The tip belongs to the miner, and the basic fee will be completely destroyed.
The important original intention of this proposal is to reduce the volatility of transaction costs and reduce network handling fees to a certain level. However, at present, the operating fee of Ethereum is still not low, and a gas fee of 14.5 US dollars is required to make a transaction in Uniswap, which is the same as before the upgrade in London.
Although it failed to significantly reduce network handling fees, EIP-1559 is still regarded as one of the most important proposals in the history of Ethereum development. There is no other reason. All the basic fees in the handling fee are destroyed, which means that every subsequent block will be destroyed. A certain amount of ETH will greatly reduce the inflation level of non-limited issuance of ETH.
According to data from Ouke Cloud Chain, as of 3 pm on August 9th, the total amount of ETH burned reached 16,440.67, and the block height at this time was 12,989,474, which is 24,474 blocks away from the 1,2965,000 block where the London upgrade took effect. piece. Based on this calculation, in recent days, for every block that miners pack, about 0.67 ETH has been destroyed, which is equivalent to $1,950.
The amount of ETH burned continues to increase
Currently, the top three applications that burn the most ETH are OpenSea, Uniswap V2, and Axie Infinity, because they are more active. Except for Uniswap, the other two are NFT projects. It can also be seen from this that NFT is becoming a popular track in the Ethereum network.
Ethereum is continuously being destroyed. Similar to the halving of Bitcoin’s production, the inflation rate of ETH will be significantly reduced. In other words, the non-limited issuance of ETH will begin to have a deflationary effect.
At this stage, Ethereum is issuing approximately 4.84 million ETH each year, and the inflation rate is about 4.4%. According to the current burning rate of Ethereum, it is estimated that 1.62 million ETH can be burned every year, and its annual inflation rate will be reduced to 2.9%. This will significantly change the market supply and demand structure of ETH.
ETH first fell and then rose, market expectations are optimistic
After the level of inflation has dropped significantly, the market performance of ETH has become the focus of particular attention of investors. In fact, within 1 hour after the upgrade in London on August 5, ETH once fell rapidly to a minimum of $2,526, and the outside world generally regarded it as a favorable market sell-off after landing.
But the reversal quickly appeared. At 9 o’clock in the evening of August 5, the news that ETH began to burn was widely spread in various blockchain communities, and ETH quickly rose. In only two hours, ETH rose to $2820, a low point. Increased 11.6%. In the following days, ETH continued to rise, reaching a maximum of 3190 US dollars, a strong rebound of 85.46% from the July low of 1720 US dollars.
The trend of ETH falling first and then rising in the short term is similar to the trend after Bitcoin’s halving in May 2020. After the halving of production, Bitcoin fluctuated around $9,000 for nearly two months, and then rose all the way until it reached 64,800. The highest point in history for the dollar.
Obviously, the destruction effect of ETH has boosted investor confidence to a certain extent. According to data from Ouke Cloud Chain, as of August 8, the total pledged number of ETH 2.0 deposit contracts reached 6,587,900. This data has been growing continuously for a long time. If this part of the “locked” ETH is included, Then, before the official landing of ETH 2.0, the market circulation of ETH will continue to decrease.
The total number of ETH2.0 pledges continues to grow
Therefore, although the income of Ethereum miners will decrease due to changes in the fee structure in the short term, the deflationary effect may increase the price of ETH. In the long run, the income of miners may not be affected.
In the view of Lebit Mining Pool founder Jiang Zhuoer, the increase in the number of block transactions brought about by the expansion of EIP-1559 and Ethereum, and the deflation brought about by ETH has made up the last piece of the puzzle over BTC. ETH is no longer just infinite fuel, but deflationary “gold”, and has since become a four-in-one super asset of “stored value assets + deflationary assets + interest-earning assets + means of production”. He predicted that the market value of ETH will exceed BTC, “either in this bull market or in the next bull market.”
From the perspective of the ETH/BTC exchange rate, since the beginning of 2020, ETH has performed better than BTC most of the time. Calculated on the basis of BTC, the price of ETH rose from 0.01695 BTC at the time to the current 0.06728 BTC, an increase of 297%. This means that in the past year and a half, ETH has increased by nearly 4 times that of BTC.
During this period of time, DeFi is the most vigorous development stage, the application on the chain has risen in an all-round way, and Ethereum has also fully demonstrated the value of the underlying network of the blockchain. It is foreseeable that as the performance of Ethereum continues to improve in the future, the ecosystem on the chain will continue to grow, and this time-tested public chain “Old Paoer” still has the potential to be released.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/ethereum-continues-to-burn-to-increase-market-outlook/
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