EIP-1559 Explained: Why Ethereum Is Still Inflationary Despite Burning Millions of ETH

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• EIP-1559 burned over 4.5 million ETH, removing approximately $15.3 billion from circulation through transaction fees.
• On-chain transfers and OpenSea NFT minting contributed to 13.29% of total ether burned on the Ethereum network.

Since the London hard fork was activated over three years ago, Ethereum has seen a notable amount of ether removed from circulation. A total of 4,523,479.74 ETH has been burned, with its value surpassing $15.3 billion at current exchange rates.

The mechanism behind this reduction, outlined in EIP-1559, burns a portion of transaction fees, effectively lowering the overall supply of ether.

On-chain transfers, one of Ethereum’s main activities, have contributed significantly to the ETH burn, removing 369,578.08 ETH. Other key contributors to this burn include popular platforms like OpenSea. 

Since August 2021, NFT minting activities on OpenSea have destroyed 230,051.11 ETH, making it the second-largest source of burned ether. The data also shows that transactions on Ethereum’s decentralized exchange (DEX) platform Uniswap have eliminated 225,723.78 ETH, while tether (USDT) transactions account for 205,458.95 ETH burned.

The burning process itself is built into Ethereum’s code, where a portion of the transaction fee, known as the base fee, is removed from circulation. This fee is not simply sent to an inaccessible address but is permanently deleted through the protocol, ensuring that no ether can ever be recovered. 

While this process has successfully removed millions of ETH, Ethereum’s inflation rate remains at 0.82%, with 3,245,017.99 ETH added back into circulation since the London upgrade.

Despite the expectation that EIP-1559 would make Ethereum deflationary, the network has not yet reached that point. While the burn mechanism continues to reduce the circulating supply, the overall inflation rate shows that the increase in the total supply of ether has not been fully offset. 

As of now, Ethereum continues to see a modest inflation rate, despite the large amount of ether burned. This highlights the complexities of balancing supply and demand within the network’s economic model.