Monday, August 8

BRL 24 billion in Ethereum has been burned since August, understand

Three months after the introduction of EIP-1559 — proposed with the intention of burning part of the transaction fees — in Ethereum, the protocol burned its 1,000,000th Ether (ETH) this Wednesday (24). This amount is equivalent to around 24 billion reais.

Other projects had already shown the efficiency of a deflationary currency, such as the BNB itself — now a competitor of Ethereum — which burns part of the trading fees of the Binance exchange. However, this does not make burning a rule, Bitcoin would not be as affected by this mechanism.

As a motivation for this burning of billions of reais in ETH, there are current network rates, which per hour are costing at least 65 reais, which can go much further depending on the type of transaction, as well as the network usage at the time.

Token burning helped the price of Ether

The price of an asset is based on supply and demand, thus the burning managed to reduce the supply of Ether in the market, as well as attracting investment eyes, increasing demand.

Although this proposal, written by Vitalik Buterin et al, was made in April 2019, it took more than two years to implement. Showing that, although more prone to change, like Bitcoin, updates to Ethereum also don’t happen overnight.

While it was a big help to the Ether price, the millionth burnt coin also puts the project’s weaknesses into focus. Its lack of scalability is the main reason for such expensive fees, after all today it takes around 70 reais of fees in ETH for a simple transaction.

This number is even higher in more complex transactions such as DeFi protocols and token transactions. The creator of Ethereum, Buterin, paid 1,800 reais in a single transaction last month.

Ethereum 2.0, the solution for scalability

As a result, the migration from Ethereum to Proof-of-Stake (PoS) is expected to resolve the protocol’s scalability issues. Allowing around 100,000 transactions per second to be performed, second Vitalik himself.

However, it is important to note that this migration could have negative impacts on the currency price. First, people will not need to stock a minimum wage to carry out transactions, which will decrease the demand for Ether.

Finally, while today the flaring is causing the ETH to rise, due to the reduction in supply, the PoS will possibly have higher inflation than the current one, since the rates will be negligible.

To balance this counterpoint, this Ethereum update is expected to take down competing projects, drawing several projects back into its orbit. As well as the Ether itself serving for money transactions as the fees will be much lower and the currency is traded on almost all exchanges in the world.