Almost 4 weeks back, one of the largest hard forks happened on the ETH network. With the EIP-1559, the network started to burn tokens on every transaction, making it become deflationary (theoretically). Still, more tokens were produced than burned, and the amount of Ethereum in circulation was increasing. But in the last 24 hours, the ETH burn rate has finally surpassed the minting rates. This essentially means more Ethereum has been burnt than produced in the last day, which has finally made it deflationary. Now, this might not be sustainable, but as more transactions happen on the network, we can expect this.
The price jump is now understandable.
In the last few days, the price of Ethereum has seen a strong rebound towards the all-time high. And now it is understandable why there has been such a bullish movement. The thing is, the network is seeing an increase in demand and a crunch in supply which is pushing the price incredibly fast. At the same time, as usage of the network increases, the burn rate of ETH also increases.
We all know about inflation which has plagued all fiat currencies for eternity. But deflation is something that Ethereum is experiencing right now. There are fewer ETH coins in the market than there was yesterday, which is very powerful. For this to happen, you have to understand how new coins are mined, and tokens are burned.
How does ETH become deflationary?
When a transaction happens, the base fee of the transaction paid by the user gets sent to an inaccessible address which removes it from the supply. At the same time, the miner that processes the transaction gets block rewards which is the new ETH they mined. But when there is very high demand, and there are a lot of transactions taking place, the base fee of Ethereum gets really high, which makes the network burn more tokens than being mined. So, it is clear that unless there is a huge demand and the network is heavily used, Eth will still be inflationary.
What are your thoughts on the ETH burn rate surpassing the minting rate for the first time? And do you think that this could help the token reach new ATH pretty soon? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.