Key facts: Since the Merge, almost half a million ETH was burned. High activity on Ethereum is essential to promote ETH burning. The total amount of ethers (ETH) in circulation reached unprecedented levels in a year and a half. With 120,072,585 ETH in supply, the Ethereum cryptocurrency reaches figures similar to those of August 2022, when the Merge occurred that put an end to mining.
Since the Merge to date, 448,459 ETH have left circulation, which implies a reduction of 0.25% of the total supply. In the 18 months since that Ethereum milestone, 1.56 million ETH were issued and 1.19 million ETH were burned. The comparison with the previous model is brutal. If Ethereum continued to operate with the proof-of-work algorithm (PoW, traditional mining), and therefore, with a larger issuance than the current one, the circulation of ETH would have increased by 5 million in the same period of time.
How did Ethereum manage to reduce the circulation of its cryptocurrency to such an extent? First, as mentioned, the issuance per block was reduced by moving to the proof-of-stake (PoS) algorithm. Likewise, through the improvement proposal EIP-1559, a commission burning procedure was introduced.
At the rate of the last 30 days, Ethereum would burn 0.9% of its supply per year. Source: Ultrasound.money. This burning implies that the more fees paid to use block space on Ethereum, the more ETH will be burned. In other words, The greater the use of the network, the more ETH burned. In this way, Ethereum developers seek to make the cryptocurrency deflationary and, consequently, a more valuable asset for the future.
What is the reason for the greater use of Ethereum
Precisely, in recent weeks activity in Ethereum had an increase of 25%. According to data from Glassnode, the average daily transactions in mid-March is above 1.2 million, higher than the level of activity in previous months, which revolved around one million daily transactions.
Transactions on Ethereum increase and enhance the burning of commissions on the network. Source: Glassnode. There are several factors that can influence the high traffic that Ethereum experiences. On the one hand, the appreciation of its cryptocurrency, which attracts more investors after having momentarily exceeded USD 4,000, as reported by BitcoinDynamic.
On the other hand, a new “DeFi spring” is brewing, with a high trading volume in decentralized finance protocols, close to the maximum levels of 2021. In this context, Ethereum is the most used network and accounts for more than 74% of the activity.