The Ethereum London upgrade is eagerly awaited. It will not reduce fees, as gas prices have risen since its launch, but because it is burning the funds.

EIP-1559 introduced a mechanism that burns some of the gas or base fee. This is important because it affects supply and issuance economics, which are currently inflationary for Ethereum under proof of work consensus.

After the merger to ETH 2.0, and the switch from proof-of-stake to ETH 2.0, the economics will likely become deflationary. This is due to the fact that the block reward issuance will decrease and that a portion the transaction fees are still being burned.

$10M in Ethereum Up In Smoke

In under 24 hours since London went live, around 3,775 ETH have been burnt, according to Etherchain. Similar figures of 3,744 are being reported on real-time tracker WatchTheBurn at the time of press.

This equates to around $10.4 million at current ETH prices of $2,770.

Using the current burn rate of 2.5 ETH per minute, the network will destroy 3,600 tokens per day. This number will rise if the network is under heavy load or gas prices rise.

Although this seems like a lot, Ethereum supply is still inflationary. Around 2. 24 million ETH has been issued over the first seven months of 2021, according to Bankless. On an annualized basis, this would equate to the ETH supply inflating by 3.8 million, or 3.3%, over the course of the year, increasing from 114.1 million to 117.9 million.

Deducting daily burn rate would mean that inflation will fall to around 1. 25% and 2. 66%, the report added, concluding:

“As we can see, based on the current supply and annualized 2021 burn figures, there is a strong likelihood that ETH becomes deflationary after the transition to Proof-Of-Stake. The Ether inflation rate could fall to -1 depending on how low the burn rate is. 05%.”

Why has gas gone up?

One side effect of London’s upgrade was a rise in gas prices. According to Bitinfocharts, average transaction fees on Ethereum have increased by 70% over the past day or two to $15.

Ethereum ecosystem researcher, “trent.eth”, [@trent_vanepps], explained that there was a lot congestion because NFT dropped , Exchanges disabling transactions during upgrades and miners setting low gas limits.

1 You will know that it’s serious when you see a screenshot! You may see people asking, in relation to London / 1559:

“Why is gas price (baseFee), so high? Why is priorityFees (“tips”) more expensive than 2 nanoEth? (gwei )?”

)

RT, to spread information! pic.twitter.com/LyUgR7VFNT

— trent.eth (@trent_vanepps) August 5, 2021