Ethereum’s Ether Supply Shifts from Deflationary to Inflationary
Crypto News– Since Ethereum’s highly anticipated Dencun upgrade two months ago, the total supply of Ether (ETH) has transitioned from being deflationary to inflationary.
A Small but Significant Increase
According to data from CryptoQuant, the total Ether supply rose from 120 million on March 12 to 120.1 million on May 7, coinciding with the rollout of the Dencun upgrade on the Ethereum mainnet. While this increase may seem marginal, it marks the first instance of Ether supply turning inflationary since September 2022.
The Dencun upgrade, implemented on the Ethereum network, led to reduced transaction fees and a departure from the concept of ultrasound money. Ki Young Ju, founder and CEO of Cryptoquant, emphasized that Ethereum’s strength lies in decentralized applications (DApps), cautioning against comparing it to Bitcoin’s narrative of sound money.
A Deflationary Period Post-Merge
Following the Merge transition in September 2022, which introduced a mechanism for permanently burning transaction fees, Ether’s supply became deflationary. This resulted in the permanent removal of over 419,713 Ether tokens from circulation, as reported by ultrasound.money.
Is the Era of “Ultrasound Money” Over?
The Dencun upgrade, by slashing median transaction fees up to four times cheaper than previous levels while maintaining network activity, has brought an end to Ether’s inflationary trend. However, this development raises questions about Ether’s status as ultrasound money, as highlighted in a May 8 report from CryptoQuant.
FAQs
What is the significance of Ethereum’s Ether supply shifting to an inflationary trend post Merge?
This shift indicates a change in the supply dynamics of Ether, the native cryptocurrency of the Ethereum network. Previously, Ether had a deflationary trend, but post-Merge, it has become inflationary, meaning that the total supply of Ether is increasing over time.
What caused this shift in Ether’s supply dynamics?
The shift occurred after Ethereum’s highly anticipated Merge, which transitioned the network from a proof-of-work to a proof-of-stake consensus mechanism.
How has the Dencun upgrade contributed to Ether’s inflationary trend?
The Dencun upgrade, implemented on the Ethereum network, made median transaction fees significantly cheaper while maintaining the same level of network activity. This reduction in transaction fees has impacted the economics of Ether issuance, contributing to its inflationary trend.
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