As a researcher who has closely followed Ethereum’s development and market trends over the years, I find it disconcerting to see Ethereum’s status as an ultrasound money system becoming increasingly questionable. The recent Dencun upgrade, which introduced several improvements to the network, has significantly impacted Ethereum’s inflation rate and purchasing power.
As a crypto investor, I’ve noticed that Ethereum‘s label as a “ultrasound money” system is becoming less certain with each passing day. This uncertainty stems from the fact that Ethereum’s supply continues to grow at an accelerated rate.
Starting from mid-April 2024, approximately one month post-upgrade of the Ethereum network during the Denas upgrade, over 112,000 Ether (ETH) has been introduced into the market each day at an unprecedented pace following The Merge.
The Effects of Dencun
Over the course of its existence, Ethereum has undergone numerous advancements, transforming it into the network we recognize today. The pivotal moment in this evolution occurred in September 2022 when Ethereum completed “The Merge,” transitioning from a proof-of-work consensus mechanism to one that operates based on proof-of-stake.
Around mid-March, Ethereum went through another significant update. This upgrade brought about a nearly fourfold reduction in transaction fees for its layer-2 networks and boosted the blockchain’s scalability by increasing its capacity. Proposed by Dencun, nine Ethereum improvement proposals (EIPs) were introduced during this event, one of which was EIP-4844. This particular EIP integrated proto-danksharding – a novel mechanism that enabled handling of larger data blobs.
As a crypto investor, I’m excited about the recent developments with blobs and layer-2 scaling solutions like Arbitrum, Optimism, and Polygon. These platforms now enable me to transmit transaction data to Ethereum for collective settling in a designated data space called blobspace, all without incurring extra costs. It’s a game-changer for improving the efficiency of my transactions on the Ethereum network.
Notable is the fact that Ethereum initiated some enhancements prior to the emergence of Dencun, aimed at maintaining its deflationary nature. One such improvement was the London upgrade executed in August 2021. This update introduced a mechanism for eliminating ETH from circulation with every transaction by burning a part of the network’s gas fees. The Merge subsequently reinforced this strategy and reduced Ethereum’s inflation rate by approximately 90%.
ETH Now Inflationary
Dencun marked a significant drop in Ethereum’s transaction fees, resulting in less ETH being destroyed through the process. Analysts who follow Ethereum’s blockchain have come to the conclusion that it is no longer deflationary due to the new ETH supply growing instead of shrinking. The correlation between network activity and fees burned on Ethereum has weakened, meaning fewer fees are consumed even as more users engage in transactions.
Despite the Merge, the amount of Ethereum in circulation has dropped markedly by approximately 345,000 ETH. The current supply stands at around 1.36 billion ETH, but a larger quantity has been destroyed through the burning process.
As a researcher studying the Ethereum blockchain, I’ve observed that following the Dencun upgrade, the inflation rate has been on the rise. Consequently, the buying power of Ether (ETH) has started to decrease. This reduction in purchasing power could potentially bring about unfavorable consequences for investors.
At present, ETH had a value of $3,374, representing a 4.8% decrease over the past week due to the broader crypto market decline.
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2024-06-27 07:18