Ethereum, the dominant altcoin in terms of market value, is widely regarded as the most suitable blockchain for the Web3 world. Many popular protocols operate on the Ethereum network, and it boasts a higher level of user activity, quantity, quality, and segmentation compared to its alternatives. However, there are certain areas of disappointment that need to be addressed.
Ethereum and Inflation
There was a widespread expectation that the network would become deflationary after the Merge, which involved the elimination of miner rewards. This did happen, resulting in a significant reduction in the supply of ETH. At one point, the circulating supply even started to decrease. However, things took a turn with the Dencun upgrade. According to data from CryptoQuant, the circulating supply, which stood at 120 million prior to the Dencun upgrade on March 12, increased to 120.1 million just two days after the mainnet update.
At first glance, this may seem like a minor increase, but it actually marks the beginning of the first inflationary period since Ethereum transitioned to the current proof-of-stake consensus model in September 2022. The founder and CEO of Cryptoquant commented on this development.
Ethereum and Its Future
Ether currently faces numerous challenges. There has been a simultaneous legal crackdown on entities such as the Ethereum Foundation, Uniswap, ConsenSys, and Robinhood. The SEC’s focus on the Ethereum ecosystem is evident. On the other hand, while the decrease in transaction fees is a positive development, it has led to a resurgence of inflation.
According to Ultrasound/Money, over 419,713 Ether has been permanently removed from circulation since the Merge. However, the Dencun update, which made median transaction fees four times cheaper at the same level of network activity, resulted in the burned fees no longer covering the rewards, thus reversing the situation.
As a result, unless there is a significant increase in transaction volume on the network, Ethereum may continue to experience inflation. However, if activity levels rise and Ethereum gains more interest, a moderate increase in supply may not have a detrimental impact on the price. The only issue now is that the narrative of deflation will no longer serve as a motivator for the bulls.
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