The inflationary pressure on ETH has been steadily decreasing since the merger. Is Ethereum now inflationary or deflationary?
Ethereum: inflationary or deflationary?
One of the hottest debates surrounding Ethereum's transition to a proof-of-stake network center around the issuance of ETH. The main argument for the merger was that it should make ETH a deflationary currency.
Since the merger was completed on September 15, the issuance of ETH has plummeted. The estimated annual issuance on the PoS network is around 600,000 ETH. The exact annual issuance varies over the years as it depends on the number of validators participating in the consensus mechanism.
However, while the output has theoretically decreased, the actual supply of ETH has increased as the network has refused to validate work. Supply growth is now positive and has increased by more than 4000 ETH since the merger. At the current rate, supply will grow by 0.21% per year.
The merger has so far failed to make Ethereum a deflationary currency. The planned supply from the PoS network has exceeded the burn rate introduced with EIP-1559.
Well, according to https://bitcoincasinos21.com/, this is good news for all online crypto casino players who prefer this currency.
Glassnode: Ethereum supply increases hourly
According to Glassnode, Ethereum supply has been increasing hourly since the Proof-of-Work release was suspended permanently. The chart below shows that the supply mined by PoS exceeds the supply burned by EIP-1559. This led to a sharp increase in the net supply of ETH after the merger.
An analysis of Ethereum supply and issuance before the merger shows that the network was under inflationary pressure for almost two years.
The issuance of ETH PoS started long before the merger - immediately after the Beacon Chain Genesis event on December 1, 2020. However, PoW issuance was not suspended until September 15, 2022. EIP-1559, the transaction pricing mechanism that introduced a fixed transaction fee burned with each block, went into effect on August 5, 2021.
This discrepancy in implementation timing has further increased pressure on the network.
Since the creation of EIP-1559, ETH has only been deflationary for very short periods - in January and May 2022. The chart below shows the difference between periods of inflation and deflation. The former are marked in green, the latter in red.
Nevertheless, PoS managed to drastically reduce the supply of ETH. In the chart above, the orange line denotes the simulated supply if Ethereum had continued to exist as a PoW system.
The blue line denotes the modeled supply if Ethereum had existed as a PoS system last year. The data suggests that the PoS system drastically reduces the supply of ETH.
According to the graph, the inflationary pressure on Ethereum has also been steadily decreasing since the merger. However, it remains to be seen whether the reduced pressure will ultimately lead to a deflationary supply.
More news on the topic: Helium (HNT) and T-Mobile want to create a 5G service in the US with cryptocurrency
Eleena Timmons