how is eth burned

How is ETH Burned?

Ethereum (ETH) burning is a process that removes ETH from circulation, reducing its overall supply. Here are the main methods through which ETH is burned:

1. EIP-1559: Base Fee Burning

With the implementation of Ethereum Improvement Proposal (EIP)-1559 in August 2021, a new fee structure was introduced. A portion of the transaction fee, known as the base fee, is burnt, effectively removing ETH from circulation.

The base fee is determined based on network congestion, with higher congestion resulting in a higher base fee. This mechanism discourages spamming and scalping, as users have to pay more to have their transactions processed faster.

2. Cryptographic Paper Burning

The Cryptopunks and Bored Ape Yacht Club (BAYC) non-fungible token (NFT) creators perform ETH burning during NFT sales. A certain percentage of the ETH earned from these sales is permanently locked in smart contracts, reducing ETH supply.

For instance, in November 2022, the BAYC creators burnt 2,490 ETH from NFT floor sales, removing approximately $4.7 million worth of ETH from circulation.

3. On-Chain Burning Platforms

Several on-chain burning platforms have been developed to allow individuals and organizations to burn ETH voluntarily. These platforms typically provide a user-friendly interface where users can send ETH to a designated burn address, effectively removing it from circulation.

Examples of such platforms include EtherScan's ETH Burner, MetaMask's burn function, and Vitalik Buterin's own burn address (0x000000000000000000000000000000000000dEaD).

4. Off-Chain Burning

Off-chain burning refers to ETH being removed from circulation outside of the Ethereum network. This can occur when exchanges, custodial services, or third-party platforms decide to burn ETH held in their custody.

For example, in April 2022, the crypto exchange Binance burned 1.9 million BNB (equivalent to approximately $750 million) from its reserves, including a significant amount of ETH.

Conclusion

ETH burning mechanisms play a crucial role in regulating ETH's supply dynamics. By reducing the overall supply, they can help control inflation, increase ETH scarcity, and potentially drive price appreciation over the long term.