In early 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 over 1.5 million ETH if we had remained in Proof Of Work. How do you explain?
Ether (ETH) deflationary again
For the first time in the year 2023, Ether (ETH) is back to being deflationary. In other words, this means that the current use of the Ethereum blockchain results in a bigger corner burn than that 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 is exactly 3,269 ETH less than during the implementation of The Merge last September. Worse yet, Proof Of Work consensus would result the creation of over 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 about 850,000 ETH per year. This would correspond to a 0.17% reduction in the amount in circulation each year.
But note that this data is based on current use of the blockchain and it 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 model. The first is of course Implementation of The Merge update, signing a transition from a Proof Of Work consensus to Proof Of Stake. This drastically reduced validator rewards by removing miner rewards in favor of stakers.
Also, 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, some 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 e on the mainnet during March 2023. This is highly anticipated as it means users will be able to withdraw Ether locked into Ethereum 2.0 smart contracts.
👉 All about the Shanghai update and upcoming important dates for Ethereum
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