A few weeks after the London hard fork, Ethereum burning tokens remains one of the most intriguing subjects in the crypto world. In a show of what might be the coin’s massive development, it recently burned $150k in the largest block yet.
Here is what it means to burn a coin.
Centralised assets like fiat currencies have a central authority that measures demand and supply to determine value. The fiat currency’s supply is determined by the government through the central bank. However, for decentralised assets like cryptocurrencies, there is no single control authority. Instead, the tokens derive value from the inherent market supply and demand. Cryptos, therefore, adopt various ways to determine supply. For now, these are inflationary and deflationary crypto supply models.
The inflationary crypto supply involves new tokens getting introduced into the market. For example, Bitcoin blocks are being mined into the network. The deflationary crypto supply involves coins being removed from the supply. In the earlier days, Ethereum was an inflationary crypto as it relied on mining for new blocks to be introduced in the market. However, following the upgrade to ETH2.0, it has become deflationary. The ETH coins are burned by holding some miners’ rewards.
Why does the deflationary coin supply work for Ethereum?
To understand why the deflationary crypto supply works for Ethereum you first have to know the impact of demand and supply on market value. The more the supply with a dwindling or standard demand, the lower the value. Cryptos like Bitcoin had envisioned this, hence provided for a market cap of 21 million coins. It means there comes a time when the demand for Bitcoin will still be high but there is less supply hence even higher value.
Ethereum, however, provides for an unlimited supply. It means, more tokens will keep on getting introduced to the market even with low demand. With the introduction of burning coins, Ethereum gets to reduce the tokens that get into circulation. Also, getting it from the miner rewards makes Ethereum mining less lucrative hence more miners would not want in. The fewer miners mean fewer tokens get in the system for reduced supply.
Ethereum burning $150k
Following the introduction of the burning system, the network has eliminated a sizable amount of Ether from the network. There have been reports that the network has taken out Ethereum worth over $1B post the upgrade.
In the recent dealings, Ethereum burns from the network hit $150k, which is the largest in a day yet. There are various possible reasons behind such high amounts burned. The first is the high uptake of Ethereum following the system upgrade. Some people are leaving Bitcoin following the mining environmental impacts. Ethereum remains the best option given it now uses the less energy-intensive Proof-of-Stake protocol instead of the previous Proof-of-Work. Once most people take up the coin, the value is high, hence more burned tokens.
The other reason is the increased block size. Every Ethereum block can now hold up to 30 million transactions. This is double what every block would hold before the upgrade. More transactions held means faster transactions. This translates to more miners’ earnings which also means more tokens burned.
As Ethereum becomes more popular so does the value and uptake increase. This means the miner rewards will increase hence more burned Ether. Overall, the Ethereum network is the gainer as lesser tokens available with low supply means better value.
