What Does the Recent Ethereum Coin Burn Mean for Investors?
On Sunday, a significant event occurred in the world of cryptocurrency. A total of 2,994.09 Ether (ETH), worth $6,930,319, was burned from Ethereum transactions. This process, known as burning, involves sending coins or tokens to an unusable wallet to remove them from circulation. But what led to this Ethereum coin burn, and why does it matter?
The Ethereum blockchain underwent a crucial upgrade on August 5th, 2021, called EIP-1159. This upgrade brought about a drastic change to the fee model. Previously, each transaction on the Ethereum network incurred a fixed fee. However, with EIP-1159, a variable base fee was introduced, which adjusts according to the current demand for block space. What makes this significant is that the base fee is burned, or permanently removed from circulation, thereby reducing the supply of Ether.
This move to burn the base fee has important implications for Ethereum investors. Firstly, it creates a deflationary effect on the currency. Ethereum is currently issuing new Ether at a rate of 4% per year, but with the implementation of Ethereum 2.0, this rate is expected to decrease to around 0.5-1%. As a result, many predict that the burn rate of Ether will surpass its issuance rate, causing ETH to become a deflationary currency. This shift can have a profound impact on the value of Ether, as a decrease in supply often leads to an increase in price.
The recent coin burn is an early sign of this deflationary trend taking shape. By removing a significant amount of Ether from circulation, the burn contributes to reducing the overall supply. As more transactions occur on the Ethereum network, more base fees will be burned, further limiting the availability of Ether in the market.
This development has caught the attention of investors and analysts alike. The net annualized issuance rate for Ether yesterday was -0.90%, indicating that more Ether was burned than issued. This suggests a potential shift in the dynamics of Ethereum’s monetary policy and could attract investors looking for assets with a deflationary nature.
It’s important to note that the Ethereum 2.0 upgrade is still in progress, and its full implementation is yet to be realized. Once Ethereum 2.0 is fully launched, the burn rate of Ether is expected to increase even further, as the new upgrade aims to enhance scalability, security, and sustainability of the Ethereum network.
Overall, the recent Ethereum coin burn signifies a significant shift in the cryptocurrency’s monetary policy. With the introduction of the EIP-1159 upgrade, Ethereum is moving towards becoming a deflationary currency. This has the potential to impact the value of Ether, making it an attractive asset for investors seeking a deflationary hedge. As the Ethereum 2.0 upgrade progresses, the burn rate is expected to increase, further solidifying Ethereum’s status as a deflationary cryptocurrency.
