Circulating supply increased by 50,000 ETH over 72 days due to Dencun update; base fees dropped by 90%.
Ethereum, one of the leading cryptocurrencies, has recently experienced its longest inflationary period since the Merge. This period has lasted nearly 72 days, during which the circulating supply of Ethereum increased by almost 50,000 ETH.
The Merge refers to Ethereum's transition from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism. This change aimed to make the network more energy-efficient and secure. Since the Merge, Ethereum has implemented several updates to improve its functionality and efficiency.
The recent inflationary period is largely attributed to the Dencun update. This update has reduced the base fees for Ethereum transactions, making it cheaper to use the network. The Dencun update also made it easier for layer-2 networks to settle transactions without competing for block space, which further reduced the base fees.
As a result of these changes, Ethereum's base fees have dropped by 90%. While this is good news for users who benefit from lower transaction costs, it has also led to more ETH being issued than burned. This means that the total supply of Ethereum has increased during this period.
Despite the recent inflationary trend, Ethereum has a burning mechanism in place to help control its supply. Since the Merge, Ethereum has burned 1.71 million ETH, resulting in a net supply reduction of 346,000 ETH. This makes Ethereum deflationary by 0.161% per year, meaning that over time, the total supply of Ethereum is expected to decrease.
For Ethereum users and investors, it's important to understand the dynamics of supply and demand. While lower transaction fees are beneficial, they can also lead to short-term increases in supply. However, the long-term deflationary trend suggests that Ethereum's value could increase as the total supply decreases over time.
