Ethereum, as the leading altcoin in terms of market value, is undoubtedly the most suitable blockchain for the Web3 world. Many popular protocols operate on the Ethereum network, making it more valuable than its alternatives in terms of user activity, number, quality, and segment. However, there are some disappointing aspects to consider.
Ethereum and Inflation
There were high expectations for the Ethereum network to become deflationary with the removal of miner rewards through the Merge. Initially, a significant amount of ETH supply was burned, and at one point, the circulating supply even started to decrease. However, the Dencun upgrade changed the situation. According to CryptoQuant data, the circulating supply increased from 120 million to 120.1 million two days after the mainnet update.
Although this increase may seem small, it signifies the beginning of the first inflationary period since Ethereum transitioned to the 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 several challenges. There are ongoing legal operations against entities like the Ethereum Foundation, Uniswap, ConsenSys, and Robinhood. The SEC’s focus on the Ethereum ecosystem is evident. Additionally, while the decrease in transaction fees is positive, it has reintroduced 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 not covering the rewards, leading to a reversal of the deflationary trend.
As a result, unless there is a significant increase in transaction volume on the network, Ethereum may continue to experience inflation. However, if activity increases and Ethereum gains more interest, a reasonable increase in supply may not have a detrimental impact on the price. The only issue now is that the deflation narrative will no longer drive the bullish sentiment.
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Disclaimer: The information in this article should not be considered as investment advice. Investors should be aware of the high volatility and risks associated with cryptocurrencies and conduct their own research.
