The number of Ethereum addresses with a non-zero balance hit a new high of 92.5 million on Monday. The bear market of 2022, which culminated in the collapse of one of the largest cryptocurrency exchanges in the world in November, does not appear to have impacted the growth of this indicator.
Some analysts see this as an indicator of broader adoption of the market’s second-largest cryptocurrency by market capitalization. Viewed in this light, the continued increase in the number of Ethereum addresses with non-zero balances can be interpreted as a long-term bullish signal for ETH.
100 million wallets with non-zero balance in Q2?
Over the past three years, approximately 20 million addresses with a non-zero balance have been created on the Ethereum blockchain per year. With only 7.5 million addresses missing, the 100 million mark will likely be reached in Q2 2023.
This will undoubtedly be a major milestone for Ethereum. Traders shouldn’t be surprised to see ETH soar soon after the number of non-zero addresses hits 100 million, with all the hype and positive press the event could generate.
Other metrics suggest continued strong network growth
The growth of this indicator is considered by some to be too crude a measure: each new non-zero address does not necessarily mean a new Ethereum user. However, a long list of other indicators supports the hypothesis of continued strong growth of the network.
According to a recently released report by the blockchain software development company Alchemythe number of smart contracts deployed on the blockchain saw a staggering growth of almost 300% in 2022. This means that the rate of increase of smart contracts in 2022 equaled that of 2021, despite the bear market of 2022. 4.6 million of smart contracts have been implemented on the Ethereum blockchain by the end of Q4 2022, the report said.
“The Web3 developer community is proving extremely resilient,” he commented Jason Sha, Growth Manager at Alchemy. “This report shows they are more focused and motivated than ever to build the future of this ecosystem while honestly acknowledging the setbacks of 2022,” she added.
Separately, the number of validators on the Ethereum network recently surpassed 500,000, surpassing 400,000 last July alone. A validator is a computer running software that verifies and validates transactions on the blockchain. A higher number of validators is considered a sign of strength of the network, as it implies that it would be more difficult for a malicious group to take over the network and corrupt the blockchain.
Ethereum deflation helps the cryptocurrency gain traction in 2023
Along with the bear market, the decline in the price of Ethereum (ETH is down about 67.5% from the highs printed in November 2021) has been one of the dominant narratives in recent quarters.
But a fundamental change was made to the Ethereum protocol in September 2022 and is likely to give the cryptocurrency a major long-term boost. Last September, Ethereum switched from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism, which requires much less energy.
This eases concerns about the cryptocurrency’s environmental impact, which could help it attract institutional capital flows in years to come, where Ethereum’s much more energy-hungry rival Bitcoin may struggle, while Ethereum’s inflation rate has also declined drastically.
In fact, as of Sunday, Jan. 15, Ethereum’s annual issuance rate was around 0.55%, while its burn rate was just under 1.2%. As a result, Ethereum is currently experiencing deflation at a rate of approximately 0.65% per year. When Ethereum was a proof-of-work blockchain, its inflation rate was around 4-5%.
Some analysts have argued that the deflationary impact of the merger may have helped prevent ETH from returning below $1,000 and reaching new yearly lows soon after the FTX crash. Conversely, Bitcoin hit new yearly lows after the FTX debacle.
Ethereum will soon undergo its next major upgrade. The “Shanghai” hard-fork is expected in March and will allow the withdrawal of staked ETH for the first time, a change presented as a positive point for the protocol as it will likely encourage more investors to “stake” their own ETH.
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