As the name suggests, Tokenomics deal with the economic model of the token within the context of its blockchain ecosystem. The tokenomics speaks to everything users should know about a token’s supply, the amount in circulation, the token issuance rate, and more. We’ll briefly discuss how ETH enters and exits circulation and the cryptocurrency’s total supply.
How ETH Enters Into Circulation
New ether (ETH) tokens come into circulation when validators add new blocks to the blockchain. This process pays validators in block rewards, fees, and maximal extractable value (MEV) opportunities.
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How ETH Exits Circulation
Tokens leave the Ethereum ecosystem through a process called “burning.” A token burn refers to sending tokens to an inaccessible digital wallet. Since no one can access tokens sent to this wallet address, they are technically not in circulation.
The introduction of ETH burning came following the EIP-1559 upgrade. The upgrade mandates burning a part of every Ethereum transaction. More than a million ETH has been burned since EIP-1559’s implementation.
The high rate of burning, mixed with the regular loss of tokens due to lost wallets, etc., could turn ETH into a deflationary asset (even though the total supply of ETH has no cap).
If you feel prepared, take our Introduction to Bitcoin and Blockchain quiz:
- Benson, J. (2021, November 24). Ethereum has burned 1 million eth since August hard fork. Decrypt. Retrieved October 28, 2022, from https://decrypt.co/86740/ethereum-has-burned-1-million-eth-since-august-hard-fork
- Ethereum Price Today, ETH to USD live, marketcap and Chart. CoinMarketCap. (n.d.). Retrieved October 28, 2022, from https://coinmarketcap.com/currencies/ethereum/
- Proof-of-stake (POS). ethereum.org. (n.d.). Retrieved October 28, 2022, from https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/