In a recent development, almost 30,000 ETH was destroyed on the Ethereum network through the burning mechanism implemented in the Merge update. The burn rate on the network spiked to new highs, thanks to the increasing network activity.
The Merge update was the highly anticipated upgrade to Ethereum that aimed to transition the network from a proof-of-work consensus mechanism to a proof-of-stake mechanism. This update brought several benefits, including faster transaction processing times and lower transaction fees. It introduced a new burning mechanism that permanently removed ETH from circulation, reducing the overall supply of the token.
The recent spike in burn rate is a positive sign for the Ethereum network. It indicates that the transition to the new consensus mechanism is progressing well and that the new burning mechanism is functioning as intended.
The largest contributors to the increased network activity are the rise of Layer 2 networks, which enable faster and cheaper transactions on the Ethereum network, and the returning activity in the DeFi industry, which has been a major driver of Ethereum's growth in recent years. Additionally, the overall increase in risk tolerance among retail investors has led to increased demand for Ethereum, further driving network activity.
While the burning mechanism is designed to reduce the overall supply of ETH, it is important to note that it is not a guarantee of price appreciation. The value of ETH is ultimately determined by market demand and investor sentiment.
At press time, Ethereum is trading at around $1,700, following the price recovery a few days ago that sent the second-biggest cryptocurrency back above the November level.