The commission burn is already leading Ethereum to an improvement in the economy of supplying ether (ETH), the native cryptocurrency of this network.
In their report this week, analysts at Coin Metrics assess the behavior of the blockchain several days after the London fork activated on August 5, with which was implemented the improvement proposal EIP-1559.
The team observes that from the activation date of the hard fork, some blocks of the network have been deflationary. In fact, the issuance of tokens has occasionally become negative, reaching figures of up to -15 ETH per block. All this as a consequence of the recent change made in the rate scheme, which introduced the burning of commissions.
In this way, since August 5 they coexist on the network two types of commissions: a base rate required for a transaction to be included in a block (which is then burned); and a “priority rate”, which consists of a voluntary tip paid to miners.
The goal with this scheme is to reduce ETH’s net inflation rate and lower commissions, a result that is estimated to occur in the longer term, as explained in previous CriptoNoticias articles.
However, according to Coin Metrics statistics, although the amount of ETH issued per block has not been strongly affected by the activation of EIP-1559, the ethers burned so far have made the daily net issuance of tokens lower.
This occurs because the burning of the base rates is permanently removed from the circulating supply, canceling part of the new supply.
So far, most of the blocks have had a net issuance of between 1 and 2 ETH (there are some blocks with issuance of more than 2 ETH due to the rewards). But there were also some cases where the net issuance per block turned negative.
To support its thesis on improvements in the supply economy, Coin Metrics indicates that the amount of commissions burned between August 5 and 9 it represented more than 32% of the tokens issued in those days. The relationship between the ethers emitted and those burned is observed in the following graph:
Sale of NFT contributes to lower emissions
In its report Coin Metrics points out among the causes of the low daily emissions of ETH are several sales of non-fungible tokens (NFT), carried out during this week. Such sales initially generated a rise in base fees on Ethereum, but the subsequent burning of these commissions contributed to some of the ETH issues turning negative.
“At 17:00 UTC on Thursday, August 5, the launch of COVID Punks NFT caused gas prices to skyrocket as users rushed to buy NFTs before they were sold out,” analysts say.
NFT’s smart contract was responsible for over 500 ETH burned in the span of about an hour. Net issuance plummeted at 17:00 after the launch of NFT, reaching deflationary levels as low as minus 10 ETH per block.
Something similar happened on August 6, with the launch of the Art Blocks NFTs. The next day, the sale of FLUF World NFT “sent gas prices over 700 GWEI, burning more than 20 ETH in a single block.”
Weekly data indicates that the market for NFT OpenSea is the main cause of commission burning, with more than 2,100 ETH burned in the first days after the fork; while the NFT Axie Infinity game is responsible for the third highest amount of ethers burned, after Uniswap V2.
Priority fees, or miner tips, also skyrocketed thanks to NFT salesSince “the senders of transactions are more willing to send high tips,” the study assures.
Taking this data into account, Coin Metrics considers that, so far, the effects of EIP-1559 have been favorable, positively influencing both network decongestion and user experience. “While congestion leads to high gas prices and costly transactions, it also leads to the burning of a large amount of ETH, which is positive for the supply economy,” he concludes.
Despite these effects – observed by Coin Metrics in a few days – some members of the ecosystem have expressed their doubts about the immediate effectiveness of the improvement proposal 1559. The idea that the EIP would make the network deflationary has been questioned mainly. in the short term.
As of this writing, a week after the EIP was launched, 37,062 ETH (nearly $ 120 million) have been burned, according to Etherscan figures. Although this amount is significant, it is still low in relation to the 345,000 ethers that were mined on average in these seven days, 10 times more than those that were burned in the same period.
Therefore, it is thought that it will take perhaps more than a year for Ethereum’s operating scheme to be totally deflationary. A fact that will probably be finalized when the network goes from proof of work to proof of stake, with Ethereum 2.0.