Ethereum (ETH) has hit a yearly low due to a significant decrease in daily ETH burns, primarily due to lower gas fees. Gas prices are currently between 5 and 10 gwei, one of the lowest this year.
On the Ethereum network, daily ETH burns have decreased significantly, reaching their lowest point this year. This has been largely influenced by the recent decline in average gas prices. Currently, gas fees fluctuate between 5 and 10 gwei, which is one of the lowest levels recorded to date and affects ETH issuance.
Reduced network fees lead to reduced ETH consumption. On Sunday, only 610 ETH was burned, a record low for the year, keeping Ethereum’s gas costs to a minimum. In contrast, daily ETH consumption consistently exceeded 2,500-3,000 ETH during the first four months of this year.
The continued decline in gas prices is due in part to a shift in activity toward Layer 2 scaling solutions and increased adoption of blob transactions introduced with the Dencun upgrade in March. This helps reduce transaction costs at Layer 2.
The dynamics of gas fees and ETH burning are closely monitored in terms of the network economic model. While lower fees benefit network users, the recent decline in ETH burns impacts Ethereum’s deflationary nature.
The London hard fork, also known as EIP-1559, implemented in August 2021, fundamentally changed Ethereum’s fee structure. The upgrade introduces a base fee that is burned and a priority fee that acts as a tip to the validator. The base fee is tied to network usage, so the higher the fee, the more ETH will be removed from circulation through burn.
Last week, Ethereum’s supply turned inflationary, with a growth rate of 0.49%, which contrasts with the previous deflationary trend reported by Ultrasound.money. If activity spikes and more ETH is burned than issued, Ethereum will revert to a deflationary state.
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