EIP-1559 introduces the concept of tips and adds a fee-burning mechanism on Ethereum. An hour after the London hard fork occurred, around 200 ETH burned.

The London hard fork occurred at Ethereum block height 12,965,000, incorporating the long-awaited Ethereum EIP-1559 upgrade. That changes the way miners receive their income by introducing tips and adding the burning of fees.

The amounts burned range from 0.03 ETH to 1.4 ETH per block, according to Etherscan. Almost an hour after the hard fork happened, around 200 ETH burned.

This implementation has brought to the Ethereum community optimism about the changes. However, it is necessary to understand that the developers expect them to make the improvements visible in the long term.

In recent months, people have heard and read that the activation of EIP-1559 causes Ether to become a deflationary asset.

Investors are particularly interested in this feature, as it would incorporate the concept of growing scarcity. For that reason, several users refer to Ether as ultrasonic money, seeking to show its supposed superiority over Bitcoin (BTC). They often call it solid money because of its limited supply of a maximum of 21 million units.

This Will Allow Ethereum to Become Deflationary

Consensys founder Joseph Lubin said there is a fixed amount of gold on the planet. Furthermore, he noted that the fixed supply of Bitcoin represents solid money for some people. There is USD 13 billion worth of ETH in the Ethereum 2.0 contract and USD 70 billion in decentralized finance. While the demand for Ether is high, the introduction of the London hard fork incorporates the burning of ETH.

Although Lubin is right, people must understand what he says over a long period. For Ether to be a deflationary asset, more ETH than issued needs to burn.

According to Bitrates, miners extract about 18 million ETH every year, so there could be nearly 49,000 new ETH.

A total of 4,800 ETH would cease to exist each day if the trend of 200 ETH that burn per hour continues. This figure is almost ten times less than that issued in the same period. For that reason, Ethereum is not yet a deflationary monetary system.

Timing of the Ethereum Cryptocurrency to Become Deflationary

Ether could be deflationary after the network goes through proof of stake (PoS) with the full implementation of Ethereum 2.0.

Developer Justin Drake is serving as a researcher for the Ethereum Foundation. He explained that the peak of supply would happen through the merge of the current blockchain with that of version 2.0. After that, there would be a reduction in the number of tokens in circulation through their burning.

According to Drake’s calculations, the supply would be around 120 million ETH for the merger to occur.

There is a total of 117 million ETH in circulation out of around 117 million. However, there is no single mechanism to calculate the supply on Ethereum, unlike that on Bitcoin.

No one knows yet when the expected merge will occur. However, some people expect the execution of a minimum viable merge by the end of this year or early next year.

Ethereum 2.0 could be fully operational in December 2023, but the developers could adjust that date as their research progresses.

By Alexander Salazar


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