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The other halving: Ethereum's block reward, cut in half after EIP-1559

The other halving: Ethereum's block reward, cut in half after EIP-1559

One month after the London hard fork went live, on August 5th, Ethereum has gone through two milestones.

  • Ever since the EIP-1559 rollout 1ETH is being burned on average in each new block.
  • September 3rd was the first day more ETH was burned thant created.

EIP-1559 added deflationary features to the Ethereum blockchain, by including a mechanism that burns ETH in every transaction. The amount of ETH has been increasing steadily and has currently reached half the ETH minted since EIP-1559. (Sept 4, 1pm CET)

Currently over 10% of the new blocks created in the Ethereum blockchain have been deflationary. Deflationary blocks are those where the amount of ETH burned exceeds the 2ETH block reward created.

September 3rd was the first day since the London hard fork that the amount of ETH burned exceeded the number of ETH minted. (Sept 4, 1pm CET)

In the last weeks of August, the activity in the NFT space increased the rate of deflationary blocks to an average of 1,400 per day, peaking at 2,861 on September 3rd. The record amount of ETH burned in one single block was 73.46ETH ($288k in current price) (Sept 4, 10am CET)

About EIP-1559

EIP-1559 was an update to Ethereum's fee market mechanism. From a first-price auction system, where the highest bidder wins, to a more predictable fixed price sale.

Before EIP-1559, users would estimate a fee price that they would append to their transactions. After the London Hard Fork the fee is established by the protocol. Users pay the given base fee, to which they can add a tip to have their transaction prioritized. The base fee is predefined, varies predictably depending on the demand, and gets burned after being paid.

EIP-1559 was initially conceived as an improvement in user experience, but it has ended up becoming a de facto monetary policy for Ethereum. The update brought two important things:

  • Every new Ethereum block is both creating ETH (in the current rate of 2ETH rewarded to miners per block) and destroying it. Which brings up a new type of blocks: deflationary blocks: those where the amount of ETH burned exceeds the number of ETH minted.
  • The rate at which ETH is destroyed depends on the activity on the blockchain. The bigger the demand of block space, the higher the base fee, meaning more burnt ETH.

The London Hard Fork linked activity on Ethereum to the value of its currency. When projects running on the Ethereum blockchain go active, such as DeFi trades of NFT launches, the whole community of ETH holders sees their assets increase their value.

The number of deflationary blocks increased in the second half of August following the NFT mania. Since August 24th, there hasn't been a day with less than 600 blocks burning more ETH than the amount created, and the number has gone as far up as 2346 on September 1st.

About Deflationary Blocks

Deflationary Blocks is an analytics platform developed by Carbono to monitor and understand the evolution and impact of the deflationary features incorporated to the Ethereum protocol after EIP-1559.