Erik Weijers, a year ago
On November 24, a milestone was reached: 1 million Ether (ETH) had been "burned". Since the beginning of August, with each transaction on the Ethereum blockchain, a portion of the transaction fee of ETH is being removed from circulation. In effect, it disappears from the market for good.
Although burning may sound scary, no one's ETH savings jar is going up in flames. The ETH of which a portion is burned was spent anyway by doing a transaction. For example, if you move your ETH from one wallet to another, or if you buy an NFT on OpenSea. OpenSea is the largest Ether burner.
Incidentally, a criticism of many users of Ethereum is that the transaction fees are too high: you'll soon be out a few tens. This prices users with smaller wallets out of the market. These high transaction costs are expected to drop when ETH 2.0 goes live in 2022. This major update will greatly increase the capacity of the blockchain.
Unlike with Bitcoin, the total number of Ether that can ever come into circulation is not exactly fixed. As we know, with Bitcoin that number is capped at 21 million. There are now over 118 million ETH in circulation. The future amount of Ether will be a result of a combination of the inflationary force of block rewards and the deflationary force of fee burning.
Due to the fee burn of ETH, which began with the so-called EIP-1559 upgrade last August, the number of ETH is decreasing. But this effect of deflation is currently still countered by new ETH coming into circulation as block rewards. On net, ETH currently still has inflation: about 1.2% annualized. Compared to 4.4% before the incinerator was switched on with EIP-1559.
When the Ethereum blockchain will transition to Ethereum 2.0 in 2022, the amount of new Ether put into circulation as a block reward will drop sharply by as much as 90%. It is estimated that Ether inflation will be negative after that point: about MINUS 3% per year. Because of the combination of these two effects, most analysts expect a price increase in the coming months.
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