Ethereum is burning its cryptos as it is gearing up for its upgrade launch

Individuals who are well-aware of the cryptocurrency domain have definitely heard of crypto burning or coin burning. It is a method of cutting the coin's supply that gained momentum in 2017. Whether it is good or bad for investors is a different question altogether, but recently, one of the most crucial pieces of news regarding crypto burning that investors should know about is that Ethereum has officially destroyed more than 2 million ETH tokens via the burn mechanism that was introduced last year. The crypto is destroying a part of its own supply and has allegedly cut down 65% of the new issuance of its currency, Ether, which is actually more than the equivalent of US$5.8 billion burned, destroyed, and removed from circulation. Cutting the amount of available currency is part of a heterogeneous strategy to enhance the capabilities of the blockchain network and reduce the amount of money that Ethereum crypto miners may gain from each transaction.

Implemented in the London hard fork, EIP-1559, the technical name for the burn mechanism, was just one of the several updates made to the network, focused on restructuring the Ethereum network and also reimagining the network's fee structure. Instead of paying all the fees to the miners to execute distinct operations, EIP-1559 essentially splits these fees into a base fee and tips. The base fee is burned, indicating that the crypto is destroyed or removed from circulation. Crypto burning, itself, might not seem like a complex process, but its purpose might still be questionable for many crypto enthusiasts. Besides, to understand why Ethereum developers took such a drastic step to destroy their own supply, we have to understand the real meaning of cryptocurrency burning. So, let's dive in first to understand what cryptocurrency burning actually is.

What is cryptocurrency burning?

Cryptocurrency users are assigned an address used to send and receive coins. For them, these addresses are like an email addresses, which they can access from anywhere. A cryptocurrency is burned or destroyed when a coin is sent to a wallet address that can only receive coins. These addresses are generally termed as 'eater' or 'burner' addresses. Generally, cryptocurrency addressees and wallets have a private key, but, these burner tokens do not have a private key, which means the tokens are gone forever. 

Now, what made Ethereum burn US$5.8 billion worth of its own tokens?

If you are thinking Ethereum is just setting a pile of cash on fire and relaxing, then rethink! Cutting down on the amount of available currency is a part of a multifaceted approach to upgrade the blockchain and cut down the amount of money that crypto miners can earn from each transaction. The EIP 1559 enabled Ethereum developers to create a new system under which transaction fees that were formerly all paid to miners were split into a base fee and a tip to the miner. This system prevents miners from entering the network with spam transactions that can eventually raise the minimum fee for others. 

Besides, Ethereum is about to come up with one of its most comprehensive upgraded versions. The Ethereum 2.0 or the 'Concensus Layer' aims to improve the network's transaction speed, lower costs, and also work on Ethereum's carbon footprint. This upgrade will transform Ethereum from a proof-of-work consensus mechanism to an entirely distinct model, called the proof-of-stake. The latter mechanism is more environmentally sustainable since it will require less computing power to achieve comparable levels of security. The developers basically aim to issue lesser Ethereum tokens onto the market, which in turn, will result in increased valuation along with a safer network. 

Bottom Line

Even though it might seem like Ethereum might is a good option for investment due to its volatility, it is becoming quite evident that the crypto is growing in market relevance, and after its upgrade is launched, its growth will witness no signs of slowing down. The ETH token burning is just one step towards this transformation. Investors can just hold on to their seats because ETH is getting ready to take them on a wild ride ahead!