Ethereum enthusiasts enthusiastically anticipated last year’s network upgrade, heralding it as a pivotal moment that would solidify ETH’s position as “ultrasound money.” The historic shift from proof of work to proof of stake in September significantly decreased ETH issuance by 90%. Numerous Ethereum proponents were confident that this change would firmly establish ETH as a deflationary currency, destined to appreciate in value from that point onwards.
However, one year later, the outlook appears to be less certain.
Over the past month, the global supply of ETH has experienced a significant increase, with nearly 30,000 ETH added to circulation, equivalent to approximately $47.9 million at the current valuation, according to data sourced from ultrasound.money. This notable surge in ETH supply can be primarily attributed to a parallel decrease in transaction activity on the Ethereum network, including a decrease in NFT trades and reduced DeFi-related transactions.
Since 2021, the Ethereum network has functioned on a fee-burning mechanism, whereby increased network activity leads to higher gas prices—essential for completing on-chain transactions. Elevated gas prices result in more ETH being “burned” or permanently removed from circulation by the network.
Recently, Ethereum gas fees have dropped significantly, with an average network transaction now costing just 7 gwei, equivalent to a mere $0.24. For instance, an average transaction on the NFT marketplace OpenSea now costs approximately $0.94. This stands in stark contrast to just over a year ago when, during the sale of Yuga Labs’ Otherside collection in May, network users burned over $157 million worth of Ethereum to mint a mere 55,000 virtual land deed NFTs, resulting in an average transaction fee of $2,854.
While low gas fees may benefit the average Ethereum user, they also contribute to a reduced burning of ETH, leading to an increase in the global ETH supply.
The recent uptick in Ethereum’s inflation has raised concerns among cryptocurrency users and investors, leading to worries about the network’s long-term financial stability.
However, the Ethereum team doesn’t seem particularly concerned about this development.
“I suspect that none of the core devs care,” said Micah Zoltu, an Ethereum core developer, regarding his colleagues’ perspectives on the matter. “If you look at the grand scheme of things, it is insignificant.”
Danno Ferrin, another Ethereum core developer, also expressed a lack of concern about Ethereum’s recent inflationary trend.
“It is still below the all-time high [ETH supply],” Ferrin stated. “And [Ethereum’s] short-term inflation is well below other chains and the economy as a whole.”
Inflation has been on a consistent rise globally since the previous year. In the United States, prices experienced their sharpest year-over-year increase since 1981 last June. In response to this economic climate, the U.S. Federal Reserve has repeatedly raised interest rates, resulting in a persistent decrease in the values of cryptocurrencies such as Bitcoin and Ethereum.