Ethereum enthusiasts held high expectations for the network’s transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) in September last year. They saw this transition as a critical moment that would solidify ETH’s status as “ultrasound money.”
The shift was anticipated to decrease ETH issuance by 90%, giving rise to hopes of ETH becoming a deflationary currency with a steady appreciation over time.
However, one year later, the situation seems less certain. Over the past month, the global supply of ETH has experienced a noticeable increase of nearly 30,000 ETH, equivalent to about $47.9 million at the time of this report, as per Decrypt’s findings.
This sudden surge in circulating ETH can largely be attributed to a corresponding decrease in transaction activity on the Ethereum network, marked by reduced NFT trades and diminished DeFi interactions.
Since 2021, Ethereum has used a fee-burning system in which larger gas costs are needed for on-chain transactions as a result of increased network congestion. Due to the “burning” of ETH caused by the increased gas prices, it is effectively removed from circulation.
According to recent data, Ethereum gas fees have significantly decreased, with the typical network transaction now only costing 7 gwei, or roughly $0.24. Even the average transaction currently costs about $0.94 on the well-known NFT marketplace OpenSea.
Just a bit over a year ago, users paid a staggering $157 million in Ethereum gas fees during the Yuga Labs’ Otherside collection sale, with an average fee of $2,854 per transaction. While lower gas fees help everyday Ethereum users, they also reduce the burning of ETH, which has contributed to the recent increase in ETH supply, causing worries about inflation among cryptocurrency users and investors concerned about Ethereum’s long-term financial stability.
Interestingly, the Ethereum development team seems relatively unconcerned about these changes.
Micah Zoltu, an Ethereum core developer, reflected the prevailing sentiment among his colleagues, saying, “I suspect that none of the core devs care. If you look at the grand scheme of things, it is insignificant.” Danno Ferrin, another Ethereum core developer, echoed this sentiment, stating, “It is still below the all-time high [ETH supply], and [Ethereum’s] short-term inflation is well below other chains and the economy as a whole.”
It’s crucial to remember that worries about inflation go beyond the world of cryptocurrencies because inflation has been increasing across the board since last year. The highest annual increase in prices since 1981 occurred in the United States in June.
The U.S. Federal Reserve has continually raised interest rates in reaction to this economic environment, which has had an effect on the valuations of cryptocurrencies like Bitcoin and Ethereum.