What is the reason for a deflationary environment on Ethereum?

The implementation of EIP-1559 in Ethereum has led to the burning of 6.28 ethers per minute and from London Hardfork the figure amounts to 1.2 million tokens burned. Is there a coming deflationary environment for cryptocurrency in 2022? Wondering Olivia Brooke at ZyCrypto.

In the 131 days since EIP-1559 went into operation, nearly 1.2 million ETH (currently worth over $ 4.4 billion) according Ultrasound Money. At this rate, it is estimated that they will burn 3.3 million ETH in one year.

The burn rate has been largely contributed by the trade in non-fungible tokens, stablecoins and decentralized financial protocols. This is demonstrated by the fact that OpenSea, the largest NFT market by both volume and trade, has been the all-time leader in token burning with over 125,000 ETH burned from transactions made on the platform. The next largest contributor to rate burning is the native Ether transfers on the blockchain, closely followed by the protocol DeFi Uniswap V2, and then Tether, the largest stablecoin by market capitalization.

Towards a deflationary future

While EIP-1559 has been controversial despite being adopted by the blockchain, there is no question that it remains critical for the future. Ethereum plans to ditch the highly stigmatized consensus mechanism of proof of work (PoW) for proof of stake (PoS). EIP-1559 is one of the key features that will adjust the incentive structure of the blockchain to ensure that current miners are motivated to abandon PoW in the long run as transaction fees burn out rather than go to miners. .

Since the deployment of EIP-1559, you’ve already had a glimpse of what’s to come once the migration to PoS happens. In November he registered his first week of deflationary issue, where the amount of ETH burned by EIP-1559 was greater than the amount issued as a reward to miners on the network. Specifically, 100,000 ETH burned in the seven-day period, while only 93,000 ETH were issued in the same time frame as block rewards for miners. This put the total net emission of ether at approximately 8,600 negatives, about $ 37 million at the time.

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Many analysts, including Bloomberg Intelligence, speculate that the trend of reducing supply is very optimistic for Ethereum in the long term.

However, high gas rates continue to be a problem for the Ethereum network. The average gasoline rate is currently around $ 6 according to tracker Etherscan. Many network users complain that the transaction fees even exceed the value they intend to make. Meanwhile the price continues to advance as it has become the best performing cryptocurrency this year, according to a recent report from the Exchange Kraken.

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Ethereum is still holding above $ 4,000 and the Ei indicators are mostly bearish.

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What is the reason for a deflationary environment on Ethereum?

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