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Reading: Approximately $5.5 billion worth of Ethereum is burned every year.
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Approximately $5.5 billion worth of Ethereum is burned every year.
Cryptodetective > Blog > News > Approximately $5.5 billion worth of Ethereum is burned every year.
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Approximately $5.5 billion worth of Ethereum is burned every year.

crypto
Last updated: 2023/04/17 at 8:10 AM
crypto Published April 17, 2023
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# Understanding ETH Burning: How the recent upgrade led to billions worth of Ethereum being burned

As the recent Shapella upgrade for Ethereum is rolled out, new data has shown that billions worth of Ethereum (ETH) has been destroyed or “burned” in the lead-up to the release. In this article, we’ll take a closer look at what ETH burning is, how it works, and what the Ethereum community can expect from this latest update.

## What is ETH Burning?

Before we dive into the recent update, it’s important to understand what ETH burning is and why it’s necessary. In essence, ETH burning is the process of permanently removing a portion of the cryptocurrency’s supply from circulation. This is done by sending ETH to an “irretrievable” address where it can never be accessed again. This process is designed to increase scarcity and generate incentives for users to hold onto their ETH instead of selling it.

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## The Role of EIP-1559

EIP-1559 is an Ethereum Improvement Proposal that was introduced over a year ago. It implemented a mechanism for burning a portion of the fees generated from ETH transactions, which would reduce the overall supply of ETH over time. However, EIP-1559 did not decrease the total supply of ETH immediately. In fact, since its implementation, the total supply of ETH has increased by 3.23 million coins (equivalent to $6.2 billion as of writing).

## The Impact of the Merge

The total supply of ETH started to shrink when Ethereum made its switch from the energy-intensive Proof-of-Work (PoW) consensus mechanism to the more environmentally friendly Proof-of-Stake (PoS) mechanism. This transition, known as “The Merge,” reduced the rewards paid out to nodes for validating the network. This, combined with the burning mechanism of EIP-1559, led to the total supply of ETH decreasing.

Since The Merge occurred roughly 208 days ago, the total supply of ETH has decreased by 82,924 coins (equivalent to over $159 million in value). Without The Merge, the total supply of ETH would have increased by 2.33 million coins ($4.5 billion) in the past 208 days. If EIP-1559 had not been implemented, this figure would be even higher at 5.66 million coins (equivalent to $10.9 billion).

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## The Shapella Upgrade

With the successful implementation of the Shapella upgrade, users of Ethereum will now be able to withdraw their staked ETH. This update has the potential to release a significant amount of ETH onto the market, which could drive the price down due to increased supply. As of writing, there is currently 18.1 million ETH locked in staking contracts.

## Conclusion

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ETH burning is an essential component of Ethereum’s overall design, designed to increase scarcity and incentivize users to hold onto their coins. While EIP-1559 played a significant role in reducing the total supply of ETH, it was the transition to PoS and The Merge that had the most significant impact. With the release of the Shapella upgrade, it remains to be seen how the increased supply of ETH will impact the market in the short and long term.

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