On 5 August, the London hard fork took place and launched a deflationary mechanism for Ethereum. In it, the base payment for processing transactions will now be burned, and miners only get a ‘tip’ for mining a block. Around one-third of the newly mined ETH will be burned.
In general, about 2.5 ETH get burned every minute, which, at the current pace and the price of the altcoin, will lead to $1.5 billion worth of the asset being taken out of circulation by the end of the year and 0.4% from its entire capitalisation. This is expected to act as a deflationary mechanism that will lead to an increase in price due to reduced supply. The network’s upgrade has already caused a 13% price spike, although many envision Ethereum reaching $4000 – $5000 by the end of the year.
Despite the storm in the Chinese market, investments in the cryptocurrency market are at their peak. For example, in the first half of 2021, world venture capital investment funds constituted $288 billion, 95% higher than in the same period in 2020. The biggest interest is with the projects linked to NFTs and DeFi services, most of which have been built using Ethereum smart contracts. Because of that, the share among all cryptocurrencies has grown from 8% to 20% in six months.
But not everything is working according to plan. Despite the deflationary mechanism, the hard fork was meant to lower the fee size by abandoning the auction model. Despite the relatively small ‘tip’ size, the cumulative fee size has continued to grow.
High fees hinder the attraction of new investments and diminish interest in Ethereum, but everything is expected to change with the coming of Proof-of-Stake, which is expected to launch in December 2021. The new algorithm will end mining, increase operation speed and decrease transaction costs. The nearing transition that many are anticipating, plus the deflationary mechanism, could be a catalyst for Ethereum’s price growth for the rest of the year.