About $2 billion worth of Ethereum (603,452 ETH) has now been burned by the Ethereum network, fueling the furnace that’s driven the cryptocurrency to its latest all-time high. 

Ethereum started burning ETH after EIP-1559 was introduced on August 5. The mechanism removes about $30 million ETH from circulation each day by sending it to a defunct address. This replaces the previous method of paying ETH to miners for validating transactions.

EIP-1559 was designed to hasten a long-anticipated upgrade called Ethereum 2.0. The upgrade verifies Ethereum transactions with proof of stake, an energy-efficient algorithm that replaces the computationally heavy proof of work mechanism.

While Ethereum is expected to “merge” with the proof-of-stake Ethereum 2.0 blockchain by early 2022, it will still take a few years before Ethereum 2.0 has the same smart contract capabilities that Ethereum has today.

One of the popular misconceptions around EIP-1559 was that it would reduce gas fees—it still costs $38.69 to swap a token on Uniswap, for instance, and several hundred dollars to mint an NFT.  Rather, EIP-1559 was designed to make Ethereum transaction fees more predictable. Proof of work miners were unhappy about EIP-1559 because they had spent a lot of money on graphic cards for mining Ethereum. 

By decreasing Ethereum’s supply, EIP-1559 has helped to drive up the price of Ethereum. This week, the coin hit $4,366, an all-time high. But Ethereum’s rise to the top rode on the coattails of a new Bitcoin futures ETF, which the SEC suddenly approved last week. Who could have predicted that?

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.