Over $5 Billion in Ether Could Be Burned in a Year, Estimates Suggest

Over $5 billion worth of the second-largest cryptocurrency ether could be burned in a year, according to estimates suggested by a Weibo user who cited ethereum core developers coordinator Tim Bieko’s fee burning expectations.

As Benzinga reported, Beiko expected that anywhere between 25% and 75% of the transaction fees on Ethereum are set to be burned after the implementation of Ethereum Improvement Proposal (EIP) 1559 via the London hard fork.

Part of EIP-1559’s mechanism involves burning a portion of transaction fees, effectively removing ETH from circulation forever through a mechanism designed to make fees easier to use and help the network deal with high demand.

The improvement allows users to tip miners if they want to encourage them to process their transactions faster, effectively making it optional to go over the base fee. This base fee rises when there’s higher demand and drops when demand is lower.

 The supply reduction helps Ethereum’s inflation rate drop, and could make the cryptocurrency deflationary if the burn rate gets high enough. Data shows that around 66.8% of fees are being burned on an ongoing basis, with nearly 3 ETH being burned per minute. When demand goes up, more ETH is burned.

Taking Beiko’s estimate into account, the user analyzed burn rates to estimate that if the network had been burning a base fee since it was launched in 2015, up to 4 million ETH would have been destroyed by now.

It’s worth noting, however, that Ethereum transaction fees were extremely low in its early days, and only picked up once demand skyrocketed amid the 2017 initial coin offering (ICO) craze, and after the launch f decentralized finance (DeFi) applications.

Every single day, over 1,000 in ETH are paid in fees, according to on-chain data. Taking this into account, since the beginning of the “DeFi summer” up to 3.3 million ETH could have been spent on transactions.

The user, as such, estimated based on on-chain data that during the upcoming year a total of 1.83 million ETH worth over $5.7 billion could be burned. The value of this ether could go up even higher in the near future, however, as some believe the cryptocurrency could outperform bitcoin.

Former Goldman Sachs executive Raoul Pal has revealed he believes Ethereum is the “greatest trade” setup that he has ever seen as the cryptocurrency’s fundamentals suggest it has a large upside ahead of it.

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The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

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