The activation of Ethereum Improvement Proposal (EIP)-1559 on August 5, 2021, has resulted in a significant transformation in the economic model of the Ethereum network.
The transformation is primarily seen through the burning of ether (ETH), with over 4.5 million ETH being permanently destroyed in the past three years and four months. This translates to a value exceeding $15.3 billion at current exchange rates. The burning mechanism operates by removing a portion of transaction fees from circulation during transactions, effectively reducing the circulating supply of ether.
On-chain transfers, Uniswap, and tether transactions have been major contributors to the burn, but the non-fungible token (NFT) marketplace Opensea has been the most significant contributor, accounting for approximately 5.08% of the total burned ether.
Despite the impressive figures, the Ethereum network is not deflationary, with an inflation rate of 0.820%. The balance between burning and inflation is crucial for Ethereum's future, as the ongoing issuance of new tokens means that the overall supply is still increasing.
The implementation of EIP-1559 and the subsequent ether burn have broader implications for the cryptocurrency market, potentially inspiring further innovations in tokenomics and highlighting the growing importance of transaction fees in the Ethereum network. As more users engage with DeFi applications and NFTs, the demand for transaction processing is likely to increase, further driving the burn mechanism and potentially influencing the asset's price dynamics.