At the start of 2023, Ether (ETH) has once again become deflationary. Since The Merge, the total amount in circulation has decreased by 3,269 ETH, compared to an increase of more than 1.5 million ETH if we had remained in Proof Of Work. How is this explained?
Ether (ETH) again deflationary
For the first time in the year 2023, Ether (ETH) has turned deflationary again. In other words, this means that the current use of the Ethereum blockchain results in a bigger burn of corners than what is created to make it work.
As evidenced by the Ultrasound.money site, the current amount of Ether in circulation is 120.5 million coins. It’s exactly 3,269 ETH less than during the implementation of The Merge last September. Worse, the Proof Of Work consensus would have resulted in the creation of more than 1.5 million new ETHor $2 billion at the current price.
Reduced supply of ETH from The Merge
In the current configuration, the operation of the Ethereum network results in a creation of 674,000 ETH per year approximately for the remuneration of the validators while the use allows to burn approximately 850,000 ETH per year. This would correspond to a 0.17% reduction in the quantity in circulation each year.
Note however that this data is based on the current use of the blockchain and can vary enormously.
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How to explain the deflationary aspect of ETH?
Several factors can explain Ether’s transition to a deflationary pattern. The first is obviously implementation of The Merge update, signing a transition from a consensus of Proof Of Work to Proof Of Stake. This drastically decreased the rewards of validators by removing those of miners in favor of stakers.
Moreover, it should be noted that Ethereum trading volumes are on the rise again since the beginning of 2023. At the forefront are non-fungible tokens (NFTs), whose activity has intensified in recent days. This results in increased gas fees, part of which is burned with every transaction on the Ethereum network.
For information, the shanghai update will be implemented on the Ethereum testnet next month and on the mainnet during the month of March 2023. This is highly anticipated as it means users will be able to withdraw Ether locked in Ethereum 2.0 smart contracts.
👉 All about the Shanghai update and the next important dates for Ethereum
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Source: Ultrasound.money
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Journalist for Cryptoast, I strive to dissect every detail of the exciting world of cryptocurrencies and make it accessible and understandable to as many people as possible.
Lilian Aliaga
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