Ethereum’s Base Fee Drop Leads to Significant Decrease in ETH Burning
The Ethereum network is currently witnessing a decline in the amount of ETH being burned, reaching its lowest level of ETH burning this year as data indicates that the base fee dropped to nearly 0.8 Gwei, a multi-year low.
On August 10th, only 210 ETH was burned, marking a significant decrease in ETH issuance and setting a record low for 2024, according to reports from ‘Ultra sound Money.’ This sharp decline contrasts with the figures from August 5, when base fees surged to approximately 100 Gwei, resulting in a daily ETH burn of 5,000 ETH. Consequently, the network’s inflation rate has risen, with net ETH emissions exceeding 2,000 ETH.
In response to this inflationary trend, Martin Köppelmann, the founder of Gnosis, has suggested temporarily raising the gas limit to boost Layer 1 activity. In a recent tweet, Köppelmann highlighted that the current base fee sits at around 0.8 Gwei, while a base fee of 23.9 Gwei would be required to counterbalance staking rewards. Despite appearing counterintuitive, he proposed that increasing the gas limit could be part of a broader strategy to tackle this issue.
The total gas fee, encompassing both the base fee and any additional priority fee, also experienced a brief drop to 0.979 Gwei over the weekend. This decrease reflects the impact of the London hard fork (EIP-1559) introduced in August 2021, which introduced a mechanism to burn the base fee and reduce the supply of ETH.
The current reduction in gas fees is primarily attributed to users transitioning to Layer 2 scaling solutions and the adoption of blob transactions following the Dencun upgrade in March. These developments have significantly lowered costs on Layer 2 networks.
In conclusion, the Ethereum network is undergoing a period of decreased ETH burning, with base gas fees hitting multi-year lows. This shift has implications for ETH issuance and inflation rates, prompting discussions around potential strategies such as adjusting the gas limit to address these evolving dynamics within the network.
