Every minute, Ethereum is being mined, and the validation of blocks on the Ether chain makes the network secure. However, due to its usefulness, the Ethereum network has faced network congestion. To make the network faster, several upgrades have and will be implemented on the Ether chain, including the EIP-1559 upgrade.
The EIP-1559 Upgrade
The EIP-1559 upgrade was introduced to the network in August 2021. The upgrade introduced a base fee that will be burned after every ETH transaction. Burning reduces the total supply of a digital asset. Thus, the upgrade made Ether a deflationary asset as more Ethereum is burned than mined every minute.
The intensive use of Ethereum for NFT and crypto transactions has led to a high burn rate since the EIP-1559 upgrade. However, in the past few weeks, Ether transactions have tanked, and the volume of ETH burned every minute has significantly dwindled.
According to data from Ultrasound Money, in the past 24 hours, just 2.06 ETH have been burned every minute. This is much lower than the burn rate experienced earlier this year. In January, the Ethereum chain had an average burn rate of 12 ETH per minute, with OpenSea being the largest source of burnt Ether.Â
The deflationary nature of the asset has drawn the attention of different analysts, with many seeing it as a positive while others see it as a negative.
The decrease in the supply of ETH every minute is expected to make Ethereum more valuable in the coming months or years since scarcity drives value.
However, the asset has a price-correcting mechanism that counters its deflationary nature. If more ETH gets burned, its value goes up. When its value goes up, the block space on the ETH chain doesn’t change, and a lesser amount of Ether will be burned until the asset becomes inflationary again. In the end, it becomes a constant switch from being deflationary to inflationary and vice versa.
