April 19, 2024
ETH Supply Growth Raises Concerns: Is Ethereum's 'Ultrasound Money' Narrative at Risk?
Altcoins News

ETH Supply Growth Raises Concerns: Is Ethereum’s ‘Ultrasound Money’ Narrative at Risk?

The merger from last year was eagerly anticipated by Ethereum supporters as a pivotal moment that would definitively confirm ETH as “ultrasound money.” Many so-called Ethereum maximalists believed that when Ethereum made the historical switch from proof of work to proof of stake in September of last year, it would officially establish ETH as a deflationary currency that would only ever increase in value going forward.

After a year, things don’t seem as definite.

As reported by data aggregator ultrasound.money, the worldwide supply of ETH has increased by almost 30,000 ETH or about $47.9 million at the time of writing. That large increase in the quantity of Ethereum in circulation is mostly attributable to a similarly strong decrease in the volume of transactions on the Ethereum network: significantly fewer NFT deals and significantly less DeFi activity.

The Ethereum network has used a fee-burning system since 2021. The more users on the network, the higher gas costs will be, which are needed to conduct on-chain transactions. More ETH gets “burned” by the network, or permanently withdrawn from circulation, as gas prices rise.

Lately, Ethereum gas fees have decreased substantially; at the moment, the average network transaction only costs 7 gwei, or $0.24. On the NFT marketplace OpenSea, a transaction typically costs $0.94. Compare that to just over a year ago: for instance, network users burned almost $157 million worth of Ethereum during the auction of Yuga Labs’ Otherside collection in May to create just 55,000 virtual property title NFTs, costing an average of $2,854 in transaction fees.

Low gas costs may benefit the typical Ethereum user, but they also result in fewer ETH being burned, which increases the global supply of ETH.

Concern has been raised by Ethereum’s recent inflationary tendency among cryptocurrency users and investors who worry that current patterns may have negative effects on the network’s long-term financial sustainability.

https://twitter.com/IIICapital/status/1708841577810989400

However, the Ethereum development team doesn’t seem very concerned about the change.

“I suspect that none of the core developers cares,” Micah Zoltu, an Ethereum core developer, stated about his colleagues’ attitudes on the subject. “If you look at the grand scheme of things, it is insignificant.”

Another Ethereum core engineer, Danno Ferrin, said that he had not been alarmed by Ethereum’s recent inflationary surge.

“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.”

Globally, inflation has been steadily rising since last year; in the United States, prices increased in June at the fastest pace of year-over-year growth seen since 1981. The U.S. Federal Reserve has regularly hiked interest rates in reaction to this economic environment, which has caused a steady decline in the price of cryptocurrencies like Bitcoin and Ethereum.

Image: Wallpapers.com

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