Weeks after the EIP-1559 was deployed on its network, Ethereum records its first deflationary day. This means that for the first time since the London Hard fork upgrade, more Ether was burned than those mined by miners on September 3.
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Apart from the fee stability feature which the EIP-1559 introduces, it also adds a fee-burning structure to the network, whereby the base fee for every transaction is burned. Essentially, this is geared toward reducing the circulating supply of the largest altcoin, currently standing at 117.4 million. The altcoin does not have a supply cap.
However, Ether’s supply returned to normal the following day, becoming inflationary again. As of press time, over 200,000 ETH valued at $795 million has been shed from Ether’s circulating supply, putting them out forever. A few days after the deflationary mechanism was deployed, it was reported that over 100,000 ETH had been burned. Drawing from that, the current burn is estimated to be 4.56 ETH per minute.
The September 3rd deflationary day is likely to have contributed to the altcoin’s surge to almost $4000 in the previous week.
In light of Ethereum’s fee-burning, industry experts have touted the altcoin as an ‘ultrasound money,’ a mocking spin-off on Bitcoin’s ‘sound money’ term. Based on precedents, if the demand for Ether is constant, coupled with the reduction in supply, the effect would be a surge in its price, which has only attained an all-time high of $4,356 during the bull run in April.
Interestingly, in recent times, there has been a demand surge for Ether following the activity spike in the sectors of DeFi and non-fungible tokens (NFT). The activity spike is also responsible for the burning rate as transactions continue to get added to blocks.
As part of the improvements on Ethereum’s network, led by its founder, Vitalik Buterin, a transition to a Proof-of-Stake (PoS) algorithm has been scheduled for the second quarter of 2022. The next few months would see mining difficulty increase as revealed by a mining difficulty time bomb upgrade. According to reports, this will force miners on the network to transit to the proposed PoS algorithm. Ethereum is only 10% below its ATH as per its current price of $3,910.