Ethereum miners amassed a record $ 70 billion in ETH after activating EIP-1559

An on-chain study published by Kraken Intelligence shows strong hoarding behavior among Ethereum miners, even when faced with the possibility of lower revenues after a major network upgrade on August 5th.

Ethereum miners have accumulated a further 2 million ethers (ETH) worth 6.1 billion US dollars after the so-called activation of the London hard fork. The most recent episode of accumulation caused miners’ net ether inventories to hit an all-time high of 22.3 million ETH (valued at nearly $ 70 billion), which is nearly 19% of total ether supply.

“ETH accumulation stagnated for most of the summer before accelerating in July, even though ETH price was trending down,” the Kraken report said.

“However, the accumulation of ETH among miners really picked up pace after EIP-1559 as they likely saw the disinflationary effects of the upgrade to drive up the price.”

Ethereum mining offer. Source: Kraken Intelligence, Coin Metrics

Miners snub FUD EIP-1559

Ethereum miners amassed a record $ 70 billion in ETH after activating EIP-1559
Ethereum miners amassed a record $ 70 billion in ETH after activating EIP-1559

EIP-1559, which went live on August 5th in conjunction with the London Hard Fork, split the transaction fees (charged via Ethereum’s native ETH token) into two parts: the base fee and the priority rate.

The network began charging base fees to add transactions to Ethereum blocks. Meanwhile, priority fees or voluntary tips have been introduced that Ethereum users pay to miners to expedite transactions.

But EIP-1559 changed the way Ethereum’s token economy works by introducing a fee-burning mechanism. With that, the upgrade proposal initiated the base rate burn, which made ETH a deflationary asset by permanently withdrawing part of its offering.

Burning some of the total fee collection also means a drop in sales for the Ethereum miners. As a result, The launch of EIP-1559 sparked warnings of lower profitability in mining, and a study found that miners’ income fell 15% shortly after EIP-1559 launched.

But that didn’t stop miners from increasing their exposure to Ethereum, as Ethereum’s hash rate hit a record 736.67 terahashes per second (TH / s) on September 23.

Hash rate performance of the Ethereum network over the past 12 months. Source: YCharts

This was despite a decline in Ethereum mining activity following China’s crypto breakthrough in May, which then pushed the hash rate to a three-month low of 477.54 TH / s.. Kraken wrote:

“This tells us that not only has the response to the Chinese move been exaggerated, but the miners see the latest update as a general boon to ETH that outweighs the downside of the miners’ lower reward.”

NFT boom and staking mood behind the mining boom

Ethereum miners survived the EIP-1559 FUD mainly due to soaring ETH prices and high demand for the network, led by a boom in non-fungible tokens (NFT).

Kraken noted that miners’ earnings hit a nearly four-month high of $ 70 million on Sept. 7. 27% increase in one month after the August 5th update, as “NFT activity on projects like PALS, Loot, and Junkies likely drove priority rates higher.”

Income of the Ethereum miners. Source: Kraken Intelligence, Coin Metrics

But a recent downturn in the NFT sector, led by sharp corrections in the number of daily active users (-23%), trading volume (-83%) and the number of transactions (-31%), also reduced miners’ incomes.

However, the amount of ETH held by miners rose to its highest level ever. which led Kraken to conclude that they are accumulating and mining Ether tokens to become validators in Ethereum’s next proof-of-stake chain, called Ethereum 2.0.

Users need to stack 32 ETH on Ethereum 2.0 smart contracts to become validators on their network. In return, they can earn up to 5% annual interest. As of September 29, Eth 2.0 had attracted 7.813 billion ETH worth $ 2.85 billion from 48,780 individual depositors, according to data from CryptoQuant.

With more Ether tokens being used up by participating and activating EIP-1559 in the meantime, the prospect of holding ETH might look profitable for miners due to classic supply and demand models.

With EIP 1559 #ethereum, supply is likely to peak at around 120 million, after which it will go down and go down and go down as demand increases. I’m pretty sure the number will go up.

Ether was trading at $ 3,006 at the time of this writing, up 300% to date.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every step of trading and investing involves risk and you should do your own research when making a decision.

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