Data from Ultrasound Money reveals that over $1.19 billion worth of Ether (ETH) was burned in the month of January 2022, a record burn rate since the introduction of the EIP-1559 upgrade in August 2021. This record burn rate was attained due to the record transaction volume recorded by the world’s largest NFT marketplace, OpenSea.
In January, the total volume of NFT transactions on OpenSea hit an all-time high of $4.96 billion. It currently ranks #1 on a burn leaderboard compiled by Ultrasound Money, with 66,822 ETH which at today’s market price, puts the dollar value at $200.72 million, burned in the past 30 days.
In second and third place were token burns from Ethereum transactions and Uniswap V3, numbering 36,064 ETH ($108.86 million) and 24,257 ETH ($75.89 million), respectively.
Backstory
The Ethereum network is transitioning from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS) and the network has been going through a series of hardfork updates to that effect. A hard fork occurs when there is a major alteration to the protocol of a blockchain network that results in a divergent split between the old protocol and the newer version.
In August 2021, Ethereum introduced the London hard fork which incorporates five new Ethereum Improvement Proposals (EIPs), which are all temporary until the permanent Ethereum 2.0 update. One of the improvements is the EIP-1559 which is a proposal for the introduction of a ‘base fee’ that tracks gas fee prices across the entire Ethereum network in order to ensure accurate gas fee predictions for network users. It also gives the Ethereum network deflationary functionalities which give the network the ability to burn gas fees.
With the introduction of the EIP-1559 last August, a portion of the Ethereum network’s transaction fee, popularly known as gas fee, is taken out of circulation for every transaction that occurs on the Ethereum blockchain. While sending and receiving ETH does not cost much, higher-level tasks, such as minting nonfungible tokens, or NFTs, via smart contracts, cost far more gas.
What you should know
- Although there are deflationary functionalities on the Ethereum network, the network is still an inflationary blockchain network; the current issuance of 5.4 million ETH per year surpasses 3.5 million ETH burned. The supply of ETH will peak only after the removal of its proof-of-work mechanism via its transition to proof-of-stake.
- Once that happens, the total amount of new emissions will be less than that of token burns, resulting in a net deflationary network. The PoS transition, dubbed “the merge,” will occur in the second or third quarter of this year. Before that, however, the network’s total hash rate has still managed to reach a new all-time high. The Ethereum Foundation recently ditched the Eth 2.0 name in its rebrand. It is now called the consensus layer.
Although the cryptocurrency market ended the month of January bearish, the NFT market was very bullish with increased amounts of market participants and volume traded during the month. Although OpenSea accounted for the most volume, we saw an increase in the volume of transactions from a new NFT marketplace that launched in January, LooksRare. We also saw an increased level of transactions from P2E platforms like Axie Infinity during January.
Ether currently trades $2,750, up 0.50% for the day as of the time of this writing.
