Over 11M worth Ether burnt post London Hardfork, but why’s ETH gas increasing?

• The ETH burning mechanism by EIP-1559 will reduce the Ethereum inflation rate from 3.3 percent to under 2.65 percent.
• Ethereum ecosystem researcher trent.eth explains what led to the surge in the ETH gas fee.

On Thursday, August 5, the much-awaited London hardfork upgrade finally went live on the Ethereum blockchain network. The implementation happened without any hassle and the Ethereum blockchain has already started burning the ETH coins.

Thanks to the implementation of the Ethereum Improvement Protocol (EIP) 1559 that introduces the mechanism of burning the base fee. This will keep the transaction inflation under check for the existing Proof-of-Work consensus mechanism on Ethereum.

Since the London hard fork went live on Thursday, online trackers have started following the ETH burn rate. In under 24 hours, more than 4000 ETH coins worth a massive $11 million have been burnt. As per data on Etherchain, the total ETH burnt coins as of press time is 4081.3. The per-minute ETH burn rate for the last 24-hours is 2.84. Thus, at the current rate, the network will burn over 4000 ETH coins in a single day.

While this might sound a lot, the Ethereum supply still outclasses the ETH burn rate. During the first seven months of 2021, a total of 2.24 million ETH has been issued. Even at the current supply rate, the ETH supply inflation will grow by 3.3 percent a year or 3.8 million. Thus, the ETH burn just reduces the rate of Ethereum inflation.

At the current burn rate, the inflation would decrease anywhere between 1.25 percent and 2.66 percent. The report from Bankless notes:

As we can see, based on the current supply and annualized 2021 burn figures, there is a strong likelihood that ETH becomes deflationary after the transition to Proof-Of-Stake. Depending on the burn rate, the inflation rate of Ether may fall as low as -1.05%.

ETH Price shoots past $2800, Gas Fee Increases

The world’s second-largest cryptocurrency Ethereum (ETH) continued its upward journey moving past $2800 levels earlier today. At press time, Ethereum (ETH) was trading 3.64 percent up at a price of $2768 and a market cap of $325 billion.

However, there was a surprising event. Over the last two days, the Ethereum gas fees have shot up instead of dropping. The ETH gas price surged 70 percent to $15 as per the data on BitInfoCharts. Explaining the reason behind, Ethereum ecosystem researchers trent.eth mentions:

There have been a few large NFT drops leading to congestion. Secondly, many services (eg. exchanges) disable functions in a window around network upgrades. This pent up demand is released once each platform is satisfied with the chain stability.

The researcher further explains that “Some miners are setting a gas limit below 30mm, which gives us a target of ~13.5mm gas. Comparatively, the gas limit before the upgrade was 15mm thereby leading to less blockspace available further leading to a reduction in throughput. Thus, Positive outcome leads to ETH market volatility further leading to increase in gas prices”.