Ethereum's inflationary trend may be on the rise

84
2
Ethereum's inflationary trend may be on the rise

The recent merge of Ethereum, announced last year, was a crucial event that would permanently define ETH as 'ultrasound money'. Last September, Ethereum's historic transition to proof of work to proof of stake reduced the issuance of ETH by 90%, and many so-called Ethereum maximumists were convinced the move would clinch ETH's status as a deflationary currency that would only, thereafter, increase in value.

A year later, things aren't looking so certain.

In the last 30 days alone, global ETH supply surged by nearly 30,000 ETH, equivalent to roughly $47.9 million at writing, according to data aggregator ultrasound.money. The rapid uptick in ETH in circulation is mostly due to a similar decline in transaction flow on the Ethereum network: far fewer NFT trades, and much less DeFi activity.

The Ethereum network has operated on a fee-fired mechanism since 2021, requiring the increase of traffic on the network to complete on-chain transactions, which are necessary to complete on-chain transactions. The more ETH is burned, the more ETH is 'burned' from the network, or permanently removed from circulation.

As of late, Ethereum gas fees have dropped remarkably low, a typical network transaction currently costs 7 gwei, or just $0.24. OpenSea's average transaction on NFT marketplace OpenSea costs about $0.94. During the sale of Yuga Labs' Otherside collection last May, for example, network users burned over $157 million worth of Ethereum to mint just 55,000 virtual land deed NFTs, an average of $2,854 in fees alone per transaction.

While low gas fees may be beneficial for the average Ethereum user, they also lead to the burning of less ETH-and therefore, surges in global ETH supply.

Crypto users and investors are worried about the current inflationary trend of Ethereum, which could cause financial difficulties for the network's long-term financial stability.

The Ethereum team appears largely unconcerned about the development.

Danno Ferrin, another Ethereum core developer, said he had not been concerned about Ethereum's recent inflationary kick.

In the United States, inflation has been consistently rising since last year, with prices in the United States at the sharpest year-over-year rate recorded since 1981. The U.S. Fed has repeatedly raised interest rates in response to this economic situation, a move that has repeatedly lowered the value of cryptocurrencies like Bitcoin and Ethereum.