Ethereum London Upgrade is Live!
Insights into Ethereum Data after the Deployment of EIP1559
Author: Brock Chen
Ethereum London Upgrade is Live!
On August 5th at 20:34, the Ethereum network block height reached 12,965,000, officially launching the London upgrade! This highly anticipated upgrade for the Ethereum community has led to increasing amounts of ETH being destroyed and an overall sense of excitement within the community. With the successful completion of the upgrade, Vitalik Buterin and other core community members went live on YouTube with fans cheering in the comments and typing "ETH TO THE MOON" on their screens.
Insights into Ethereum Data after the Deployment of EIP1559
1. Total Amount and Value Destroyed
As of August 15th, within the almost two weeks since the deployment of EIP1559, approximately 45,937 ETH worth roughly $140 million has been destroyed on the Ethereum network.
Despite the destruction of such a significant amount of ETH in such a short amount of time, it's important to note that after the deployment of EIP1559, miners needed to adjust the Gas Limit to 30M to maintain 15M Gas. Some miners didn't adjust the parameter right away, leading to higher gas prices and quicker destruction rates. Shortly after the London upgrade was completed in less than 6 hours, nearly 2000 ETH was destroyed.
2. Historical Trends: ETH Destruction, Average Gas Price, and ETH Minting Rate
Next, we'll take a comprehensive look at the trends of "ETH destruction," "average gas price," and "ETH minting rate" on the Ethereum network in the week following the completion of the EIP1559 upgrade.
ETH Destruction Trend | Source: Dune Analytics
Average Gas Price Trend | Source:
Trends in Ethereum's issuance rate | Source: Dune Analytics
From the above graph, we can understand that, in general, over the past two weeks:
The network's base fee has been fluctuating in the range of 30-60 Gwei, with an average gas fee fluctuating in the range of 35-70 Gwei, resulting in network transaction tips fluctuating in the range of 5-10 Gwei.
The average destruction rate of ETH is approximately 150 ETH per hour, equating to around 3600 ETH per day. Based on the formula for deriving the destruction quantity from the average base fee (x Gwei ⇒ x*100 ETH/day), the average base fee is around 36 Gwei.
Eric Conner, a core Ethereum developer and co-author of EIP-1559, previously stated that EIP-1559 will reduce Ethereum's annual inflation rate from 4.2% to 2.6%. Interestingly, from the trends in Ethereum's issuance, we can see that Ethereum has entered a deflationary state three times in the past.
Of course, the main reason is due to the skyrocketing network gas prices causing some blocks' block rewards to be less than the basic transaction fees destroyed within them, and this transient gas price increase is mainly caused by the frenzy of NFT purchases.
For example, let's take the first peak in the trend of Ethereum's issuance rate chart. It was around 1 am on August 6, four hours after the deployment of EIP1559. The network's base fee soared to 207 Gwei, with a gas price of 400 Gwei under the traditional transaction fee model. The culprit behind this was the frenzy of NFT project COVIDPunks' early minting, and within just one hour, COVIDPunks' gas fee consumption had ranked first on the Ethereum network, spending nearly 663 ETH.
COVIDPunks gas fee consumption ranked first | Source:
Note: The images used in the example may not be accurate and are for illustrative purposes only.
After EIP1559, what Ethereum economic data can we expect?
When discussing ETH's inflation issuance, we cannot ignore Ethereum 2.0 researcher Justin Ðrake's "Economic Predictions for Ethereum after EIP1559 was launched" on August 8th.
Justin Ðrake predicted three possible time points for the PoS merger: optimistic estimation is February 1, 2022, the highest possibility is March 1, 2022, and conservative estimation is April 1, 2022.
In addition, combining the fee destruction of EIP1559 with the relevant economic parameters after the PoS merger, Justin Ðrake predicted that, ideally, the future supply limit of ETH could be 120 million, and ETH is expected to achieve deflation with the destruction effect of EIP1559, with total supply reducing to 100 million within 11 years.
Also, under the comprehensive PoS issuance and transaction fee revenue, the annualized return rate of participating in ETH2.0 staking is expected to be between 8.4% to 19.8%.
EIP1559 Transaction Ratio: Are all transactions EIP1559 fee mode?
First of all, we need to know that after completing the London upgrade, the Ethereum mainnet still supports backward compatibility with old transaction formats.
The gas price in the old transaction format will be automatically converted into the "base fee + tip" format, and the remaining gas price after paying the base fee will be paid to the miner as a tip (regardless of whether so much tip is needed, so the fees paid by the old mode may be higher).
Through the above figure, we can know that the fluctuations of the "EIP1559 transaction ratio" indicator are large, but overall, the "EIP1559 transaction ratio" is concentrated in the range of 5% to 20%, especially in the early days, the ratio was basically below 5%, and the overall ratio gradually increased as time went on.
This is not difficult to understand because the fee is backward compatible, and some wallet manufacturers have not yet launched an update to the EIP1559 fee mode. As follow-up updates are implemented, the transaction ratio will naturally gradually increase.
EIP1559 Community Perspective
Here is the result:
Insights into the recent Ethereum ecosystem
Supporters and opponents of EIP1559
Regarding the deployment of EIP1559, there are supporters as well as opponents. Opponents include not only miners but also members of the Ethereum community who approach it from an economic theory standpoint (represented by Ethereum enthusiast Ajian).
Supporters have the following core viewpoints (basically the benefits of EIP1559):
- Optimizing user experience: achieving stability and predictability in Ethereum network transaction fees.
- The design of base transaction fees can solve the "economic abstraction" problem: Previously, transaction fees were either zero or in a form other than ETH tokens, and miners could still package transactions (with compensation in other forms). But with the EIP1559 fee model, transactions must include a base fee.
- Improving the ETH token economic model: Previously, ETH only served as a utility token and served as a transaction fee in the Ethereum ecosystem, even indirectly capturing some currency premiums due to its status as a base currency, but it could not directly capture the value of Ethereum ecosystem development. However, the design of destroying the base fee can improve this deficiency, and the more prosperous the ecosystem, the more ETH transaction fees will be destroyed, forming a benign cycle and achieving the value capture of ETH tokens.
- In short, destroying ETH can reduce circulation, benefit ETH holders, so the community is generally in support.
Opponents' core points are as follows:
- Depriving miners of their basic income is a form of forced taxation that violates basic economic principles and poses a long-term threat.
- EIP-1559 cannot actually achieve its vision goals and will instead introduce unnecessary properties into the system.
It is fortunate that there are positive and negative perspectives, which can prevent blind pursuit. Of course, most of the community supports EIP1559, especially now that it has been deployed. However, we need to understand the arguments and evidence of opponents and observe their reminders in practice. After all, all of this is an experiment, and no one can guarantee 100% success.
Recent development in NFT + GameFi
With NFT chain games represented by Axie Infinity booming, the NFT trading market is active again, and the fundamental data has reached a new historical high. Driven by the NFT + GameFi craze, the Ethereum ecosystem has shaken off the previous "bearish atmosphere."
As for the token price, at the time of writing, it....
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Ethereum and NFT Markets Are Surging
ETH rose from a low point of $1700 to nearly $3200, with a gain of almost double. With the excitement of approximately 3600 ETH being destroyed daily, the market is optimistic about future trends.
OpenSea dominates the NFT trading market with a market share of 96.3% in July, and its recent data indicates a continued surge in demand. In July, OpenSea's monthly transaction volume exceeded $300 million, with over 450,000 NFT sales and transaction fee revenue exceeding $20 million.
In August, the trading volume of OpenSea's active users exceeded July's total trading volume. After the Ethereum network's EIP1559 upgrade, OpenSea was the primary contributor to ETH destruction.
Before the London upgrade, ETH options' open interest and trading volume increased significantly, with most being bullish options. This bullish sentiment is not a short-term speculative trend driven by EIP1559.
Data from Deribit indicates that on August 6th, the volume of Ethereum's bullish option for expiry on March 25th next year surged, reaching 27,870 contracts with a nominal value of $77,702,396.1. The contract with the highest volume had an expiry date of March 25th next year, with a strike price of $50,000 and another contract with a strike price of $40,000, with 12,764 and 12,509 contracts respectively.
Alternative data shows that the market has gradually transitioned from the panic zone to the greed zone in the past month.
EIP1559, Boosting Ethereum to Surpass Bitcoin?
The superior performance of ETH in all aspects this year has further strengthened the narrative of "Ethereum surpassing Bitcoin".
Currently, Bitcoin's annual inflation rate is about 1.8%, while Ethereum's current inflation rate has been reduced to around 2.6%, and it is even more likely to achieve a supply cap or even deflation after the implementation of PoS in the future. With such strong ecological incentives in Ethereum, surpassing Bitcoin seems no longer a myth in the eyes of some.
However, as of the time of writing, the exchange rate of ETH-BTC is fluctuating around 0.07, and if Ethereum's market value wants to surpass Bitcoin, the exchange rate will have to rise by at least 129% to 0.16045.
EIP1559 is an Ethereum Improvement Proposal that aims to change the way transactions are currently processed on the Ethereum network. This proposal will introduce a new fee structure that will make the network more efficient and reduce transaction fees for users.
Ethereum's ecosystem is diverse and constantly growing. It allows for the creation of decentralized applications (dApps) and smart contracts, making it a popular choice for developers. The Ethereum network is home to various other projects, including DeFi, NFTs, and gaming.
With the deployment of EIP1559, continuous destruction of ETH, and the prosperity of the Ethereum ecology, will the story of Ethereum surpassing Bitcoin really come true when it transitions to the PoS merge?
(Source: Huoxing Finance)