Despite facing the prospect of generating lower revenue following a major network update on August 5, an on-chain study published by Kraken Intelligence highlights a strong accumulation of ETH among miners.
Since the activation of the London hard fork, Ethereum miners have accumulated another 2 million Ether (ETH), worth $ 6.1 billion. The latest accumulation episode brought the miners’ net holdings to a all-time high of 22.3 million ETH (worth nearly $ 70 billion), corresponding to nearly 19% of the total supply of Ether.
“Accumulation of ETH stagnated for most of the summer before picking up speed in July, despite the price of ETH declining“, reads the Kraken report.
“However, the accumulation of ETH among miners really took off following the EIP-1559, possibly due to the disinflationary effects of the upgrade that pushed the price higher.”
Miners snub the EIP-1559 FUD
The EIP-1559, integrated together with the London hard fork on August 5, split the transaction fees (chargeable via Ethereum’s native token, ETH) into two parts: the base fee and the priority fee.
The network has started charging basic fees for adding transactions to Ethereum blocks. Meanwhile, it has introduced priority fees – or voluntary tips – that Ethereum users pay to miners to speed up transactions.
The EIP-1559 modified the Ethereum token economy, introducing a mechanism of burn. Thus, the improvement proposal (improvement proposal) has started the burn of the basic tariff, definitively removing part of its supply from circulation and laying the foundations to make ETH a long-term deflationary asset.
Burning a portion of the total fee collection also means a drop in revenue for Ethereum miners. As a result, the launch of the EIP-1559 raised warnings about the lower profitability of mining, with a study finding that miners’ revenue fell by 15% soon after the EIP-1559 was activated.
But that didn’t stop miners from increasing their exposure to ETH: Ethereum’s hash rate hit a record 736.67 terahash per second (TH / s) on September 23.
Nonetheless, following the Chinese crackdown on cryptocurrencies in May, there was a decline in Ethereum mining activity, bringing the hash rate to a quarterly low of 477.54 TH / s. Kraken commented:
“This tells us not only that the reaction to China’s crackdown has been exaggerated, but that the miners also see the latest update as an overall benefit to ETH, despite the reduced mining rewards.”
NFT boom and staking race behind the rise of mining
Ethereum miners survived the EIP-1559-related FUD mainly thanks to rising ETH prices and high demand for the network, driven by the boom in the non-fungible token (NFT) industry.
Kraken noted that miners’ revenue reached a nearly four-month high of $ 70 million on September 7 – a 27% increase in one month after the August 5 update, as “NFT activities in projects like PALS, Loot and Junkies have probably pushed priority fees higher.“
But a recent slump in the NFT industry, driven by sharp corrections in the number of its daily active users (-23%), trading volume (-83%), and transaction count (-31%), has also pushed down as well. the income of the miners.
However, the amount of ETH held by miners has risen to the highest level to date, prompting Kraken to infer that are accumulating Ether to become validators on the next Proof-of-Stake version of Ethereum, Ethereum 2.0.
Users will have to stake 32 ETH in Ethereum 2.0 smart contracts to become network validators. In return, they can earn up to an annual percentage rate of 5%. As of September 29, Eth 2.0 attracted ETH 7.813 million, worth $ 2.85 billion, from 48,780 unique depositors.
Related: Ethereum reserves on cryptocurrency exchanges hit new lows
Meanwhile, as more Ether come out of active supply due to staking and activating the EIP-1559, the prospect of holding ETH could seem very profitable for miners:
“With EIP 1559, the supply of #ethereum will probably peak at around 120 million, after which it will start to decline and in the meantime demand will increase. I’m pretty sure the value will go up.”
With EIP 1559 #ethereum supply will likely peak around 120 million, after which it will go down and down and down, meanwhile demand will be rising. Pretty sure that means the number will go up.
– Lark Davis (@TheCryptoLark) September 24, 2021
At the time of writing, Ether is trading at $ 3,118, up more than 300% year to date.
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