The much-anticipated Ethereum London upgrade went live on August 5 and is already consuming millions of dollars in digital currency.
On August 5, London was activated, ushering in the long-awaited EIP-1559 and its upgrades to the transfer fee mechanism. As a result, a portion of the base fee is now burned, and the process has been running smoothly in the hours following launch.
Several trackers have been set up to keep track of the constant burning of Ethereum. At the time of publication, Etherchain was reporting a total cumulative burn of 3,630 ETH, less than 24 hours after the upgrade was deployed. At current prices, this is worth around $10 million.
The network could destroy 3,500 tokens per day at its current burn rate of 2.47 ETH per minute.
Blockspace demand is expected to remain stable.
This ongoing destruction of Ethereum tokens will have an effect on supply and issuance in the long run. While the asset is still being mined, the economy will remain inflationary. This is likely to change when it switches to proof-of-stake, which will reduce the issuance of block rewards. Following that, the issuance is likely to become deflationary as a portion of the transaction fees is continued to be burned.
With the ongoing DeFi and NFT boom and a crypto bull market, the Ethereum blockspace has skyrocketed this year. The network has been so popular that average transaction fees reached an all-time high of $70 on May 12. Peak gas prices for smart contract operations have risen to hundreds of dollars.
Although network demand has slowed to more manageable levels, gas is still a hefty $15 on average, according to BitInfoCharts. This is a significant amount of potential ETH that will now be lost.
Millions of Ethereum are set to be burned.
On the Bankless newsletter, Ben Giove, President of Chapman Crypto, has been crunching numbers and running some hypothetical scenarios. Because the base fee varies per block, it is difficult to make accurate predictions because it can range from 25% to 75% of the total transaction fee.
He used the same 25% to 75% burn rates, claiming that if EIP-1559 had been in effect, between 467,000 and 1.4 million ETH would have been burned in 2021. Annualizing these figures yields a range of 800,000 to 2.4 million ETH projected to be burned in 2021.
At current ETH prices of $2,760, this amounts to between $2.2 billion and $6.6 billion in dollars.
These are just estimates, but they highlight the potential effects of this week’s upgrade on Ethereum supply and issuance in the future.