One year ago, Ethereum ($ETH) underwent a significant transformation, transitioning from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus algorithm. This transition altered the network’s fundamental operation and had substantial environmental implications.
The shift to PoS was instrumental in reducing Ethereum’s environmental footprint, as it no longer relied on energy-intensive mining processes. This transition marked a turning point, aligning Ethereum with more sustainable blockchain technologies.
Another pivotal change occurred with the implementing the Ethereum Improvement Proposal (EIP) 1559 during the London hard fork. This EIP revolutionized the way transaction fees were handled on the Ethereum network. Instead of the previous auction system, users now pay a base fee for their transactions to be processed by validators. Additionally, users can choose to tip validators to expedite the processing of their transactions.
One of the consequences of EIP 1559 has been the burning of ETH tokens. Over 980,000 ETH tokens, equivalent to more than $1.5 billion, have been burned. Simultaneously, approximately 11.6 million ETH have been staked by a diverse group of over 360,000 validators.
Ethereum staking has emerged as a profitable avenue for cryptocurrency holders and exchanges. These platforms allow users to stake their ETH, locking it on-chain to earn rewards while maintaining liquidity through a separate token. A portion of these rewards can be collected in exchange.
Interestingly, over the past 30 days, Ethereum’s supply has exhibited a yearly growth rate of 0.03%, a notable change from the previous month when it experienced a slight decrease of around -0.003%. This shift is attributed to the reduction in fees paid on the network. Without the burning mechanism introduced by EIP 1559, Ethereum’s supply would have grown substantially by 3.4% annually over the same period.
Notably, Fidelity Digital Assets, the cryptocurrency-focused arm of the renowned investment giant Fidelity Investments, recently released a report titled “Ethereum Investment Thesis.” The report emphasizes that Ethereum is trading at a discount and suggests that its fair value should be around $2,090 based on a discounted cash flow model. This assessment considers Ethereum’s circulating supply of approximately 120 million ETH and its annualized fees, which have exceeded $6.8 billion.
In addition to these developments, large Ethereum whales have been actively accumulating ETH, with purchases totaling over $400 million in just 24 hours. This accumulation coincides with a broader correction in the cryptocurrency market, which has seen its total market capitalization hovering around the $1 trillion mark.
In conclusion, Ethereum’s transition to PoS and the implementation of EIP 1559 have reduced its environmental impact and reshaped its economic dynamics. These changes and growing institutional interest suggest that Ethereum’s future remains promising despite short-term market fluctuations.
