Ethereum burns for the first 24 hours. What is the Chinese community concerned about?

On August 5, at block height #12965000 (20:33 Beijing time on August 5), the highly anticipated Ethereum London upgrade was completed. The London upgrade involves many proposals, the most notable of which is EIP-1559. The proposal introduces a destruction mechanism to make on-chain fees more reasonable, while also alleviating Ethereum inflation to a certain extent.

As of 20:33 on August 6, 4,696 ETH have been destroyed, with a destruction rate of about 3.26 ETH/minute. At the current rate, it is estimated that 1.7 million ETH will be destroyed each year, with a value of about US$4.7 billion.

During these 24 hours, the Chinese community paid close attention and raised many discussions that are worth thinking about. Babbitt compiled some of the content for readers' reference.

Question 1: Will the burning mechanism cause ether to deflate?

At 2 am last night, @神鱼er posted a picture of Ethereum burning. The picture shows that the number of ETH destroyed in several consecutive blocks is more than 3. Since the number of ETH mined in each block is currently around 2-3, the number of additional issuances is less than the number of destructions, which means that during this period, Ethereum "really" achieved deflation.

After the introduction of EIP1559, the fees generated by users interacting on the chain are divided into two parts, one is the base fee (needs to be destroyed), and the other is the tip paid to miners (not destroyed). The base fee is adjusted according to the network dynamics and generally does not need to be adjusted by users. Users adjust the tip paid to miners. As the network becomes more active, the higher the base fee paid by users, the more it is destroyed, resulting in a period of deflation. However, in the long run, if Ethereum does not switch to the POS mechanism, the current destruction volume may not be enough to cause ETH deflation compared to the current annual issuance of 4-6 million ETH.

@DeFi何太极V said that the burning mechanism will not immediately deflate ether. It will take until Ethereum is fully upgraded to POS, when the annual issuance rate will drop to 0.4%. Therefore, EIP1559 (burning mechanism) + POS (inflation rate as low as 0.4%) + exponentially increasing on-chain demand = deflationary ether.

@冬兵_DeerHODL said that the current annual inflation rate of Bitcoin is about 1.75%, while that of Ethereum is 3.60%. After the activation of EIP-1559, based on the current burning rate, the actual inflation rate of ETH can be reduced to about 2.55%. In other words, the London upgrade has reduced the inflation rate of ETH by about 30%, which is equivalent to a small halving.

If ETH's PoS transformation plan can be completed on schedule next year, considering that the theoretical inflation rate of ETH2.0 is about 0.4%, combined with the burning effect of EIP-1559, ETH's inflation rate will be further reduced, turning into an annual deflation of about -0.7%, becoming a truly deflationary asset.

Thought 2: Will Ethereum miners’ income decrease?

@DeFi123 calculated based on Spark Mining Pool at 9 am this morning that after the implementation of the 1559 upgrade, today's mining income was compared with yesterday's mining income before the upgrade. After the upgrade, the actual income (in RMB) of miners was about 2% less. The impact of the upgrade on miners is not too great at present.

The data obtained by @37度卡农 is that after EIP1559, the income of Ethereum miners will drop by 30-40%.

Question 3: Will ETH’s market value exceed BTC?

According to coingecko data, the current market value of Bitcoin is 760 billion US dollars, and the market value of Ethereum is 320 billion US dollars, the former is twice the latter. From the historical market value comparison of the two, the market value of Bitcoin has always been higher than that of Ethereum. It was like this before, will it be so in the future?

@江卓尔_情感博客主’s view is that ETH will surpass BTC in this bull market. His logic is:

The deflation caused by EIP-1559 & large block expansion (increase in the number of transactions) has enabled ETH to fill the last piece of the puzzle to surpass BTC. ETH is no longer just unlimited fuel, but continuously deflationary gold. From then on, ETH has become a super asset that is a store of value asset + deflation asset + interest-bearing asset + means of production.

Jiang Zhuoer also said that many members of the Bitcoin Cult and the Eternal Bull Market Party are already well aware of this, but their emotional inability to accept it makes it impossible for them to make up their minds and move forward completely.

One of the representatives of the Bitcoin Cult, @玛雅cndx, refuted Jiang Zhuoer’s argument that “ETH will eventually surpass BTC”. The main logic is as follows:

1) Deflation is just a publicity gimmick. Currently, each block of Ethereum generates 2 ETH of new coins, while only 0.733446464958872557 ETH is destroyed. The amount of new coins issued exceeds the amount of destruction.
2) For interest-bearing assets, all currencies can generate interest through DeFi. The annualized rate of return of Bitcoin is not inferior to many other currencies.
3) As for Gas production, it is not exclusive. Many public chains can have their own Gas currency. The development of thousands of chains is already a future trend. No smart public chain is irreplaceable. Only Bitcoin, which is highly decentralized and highly consensus-based, is irreplaceable.

Maya also said that ETH is the biggest project that "cheats" your precious Bitcoin. Many "fans" who lack faith cannot resist the temptation, and some or even most of them have switched. Those who boast that Ethereum can be the first may actually be panicking inside. They seem to be firmly optimistic on the surface, but they are probably planning to wait for the leeks to enter and quickly exchange them for Bitcoin. Only those who have a full understanding and affection for BTC can hoard it, and they are worthy of holding Bitcoin and hoarding it until its future.

@暴走北宽’s main position is basically Bitcoin, with only a small amount of ETH as DeFi fees. His view is that it is difficult for Ethereum to surpass Bitcoin in the future. The logic is:

1) Competition from rivals. When a deflationary currency is used as fuel, many people will choose other public chains.
2) The disadvantages of POS have been debated in the industry for 7 years.
3) Changes in rules are not conducive to creating stable expectations for participants.
4) Bubble index in Defi. If there is a long bear market in the future, you can find out.
5) Technical debt. This includes centralization caused by the increasing size, TPS, bugs in various protocols, and whether deflationary currencies can be used as fuel.
6) Vitalik Buterin’s variables.

Unlike Maya's extreme stance, Baozou Beiwei positively affirmed that the development of Ethereum is of great significance to the cryptocurrency world. He said that anyone who has benefited from Defi should not resist Ethereum too much.

Thought 4: Wouldn’t it be better if the burned ETH was rewarded to Dapp developers?

One misunderstanding about EIP1559 is that EIP1559 is equivalent to a consumption tax, and the final cost will be passed on to the end consumer.

Former Grouk co-founder and CTO @jolestar refuted this, saying that the collection method of EIP1559 is a bit like consumption tax, which is a way for platform protocols to capture value. However, in the scenario of consumption tax, taxes will increase production costs. When the costs of all producers increase, producers will be forced to pass on costs by raising prices. However, the cost of miners in the blockchain field is only related to the competition between miners, and transaction fees are only related to the competition between users. Miners do not have the ability to pass on "costs."

If we use a startup as an analogy, Ethereum is now equivalent to having revenue and is no longer in the stage of pure money burning. At the current rate, it is estimated that one-third to one-half of the additional issuance can be burned in a year, reducing the loss margin and hopefully achieving a break-even point, which can be regarded as exploring a business model for a public chain.

Last night, ETH burned more than 3,000 ETH, which was a pity. Jolestar proposed an idea: reward the burned ETH to the contract developers who were used. For example, Opensea could earn more than 300 ETH in one night, which is also a considerable income for DApp. The built-in transaction fee of DApp can be reduced or even cancelled.

If this is the case, the enthusiasm of Dapp developers on Ethereum will be greatly stimulated, and it is not ruled out that a new round of ecological explosion will occur.

Question 5: What impact will it have on ordinary users?

DeFi100 said that if Ethereum is not congested in the future, it will be good for users because it is easy to use. If it is congested, it is also good because the supply is burned. With the innovation of DeFi and GameFi, the demand side is constantly growing. As for the price trend, @BeatleNews suggested that you can refer to the supply and demand model of "Principles of Economics".

Winter Soldier's summary is more concise: After installing EIP-1599, if the gas fee soars, the currency will be deflated and the currency price will rise. If the gas fee drops, the use will be smooth as silk, and the currency price will rise. In any case, users will not lose money.

Appendix: Tools for observing EIP-1559 base fees and burns

https://ultrasound.money

Introduction: The best looking tool at the moment. The animated picture of Ethereum flapping its wings on the homepage means burning Ethereum to add fuel to the Ethereum spaceship, ready to go. The meaning is very profound. It can be seen that a lot of effort has been put into the UI. On it, you can see: the amount of Ethereum burned and which Dapps burned the most.

https://ethburned.info

Introduction: Very concise, you can see the total combustion volume and the combustion volume in the last hour.

https://etherchain.org/burn

Introduction: The data is very rich and comprehensive. You can see the Ethereum base fee, total burn amount, burn rate per minute in the past hour, burn rate per minute in the past 24 hours, as well as mining block rewards, the number of blocks destroyed per block, etc.

https://dune.xyz/kumavis/eip1559

Introduction: dune products are of the highest quality.

https://www.oklink.com/data/eip1559

Introduction: Made by OKLink, suitable for domestic users, very smooth.