According to experts, a continued ETH inflation could weaken Ethereum’s security in the long run.
By Mayowa Adebajo
Edited by Julia Sakovich
Updated
2 mins read
Ethereum’s ETH ETH $1 925 24h volatility: 0.8% Market cap: $232.03 B Vol. 24h: $10.66 B supply has risen to heights not seen since over two years ago. This follows after data from ultrasound.money showed Ethereum’s total supply standing at 120,521,523 ETH.
The figure is 383 ETH higher than that which was recorded on the day of The Merge upgrade back in September 2022. With the current situation, experts are now wondering what may be responsible for the increase, and how telling its impact could be on the coin and its ecosystem at large.
Some experts have pointed accusing fingers at Ethereum’s Dencun upgrade, saying it may pose serious risks to ETH in the long run. The upgrade, which took place last year, basically changed how transaction fees are processed.
By introducing blob transactions, designed to handle large data more efficiently, the process of routinely burning a large portion of Ethereum transaction fees to reduce overall supply became abolished.
The new transactions use a different fee structure, and according to Presto Research analyst Jaehyun Ha, this poses a serious threat to Ethereum’s status as the “ultrasound money”.
For now, Ethereum’s network activity may be strong. However, the reduced fee burning rate suggests that there remains a strong possibility that supply continues to rise, Ha added.
Shortly after The Merge, Ethereum’s supply started falling. It continued its fall till it reached a low of around 120,064,500 ETH in April 2024.
However, once the Dencun upgrade took place in March, the supply levels started rising again. Although a connection has already been established between the Dencun upgrade and ETH’s inflation, some analysts believe that there may be other factors in play too.
Byoungjoon Kim of DeSpread Research, for example, believes that the increase in supply is also being driven by the fact that users are moving on to other networks like Solana. Migrating to Solana is not exactly a surprise due to the ongoing memecoin frenzy. However, users are also moving to various other Layer 2s that have also recently emerged.
According to Kim, continued ETH inflation could weaken Ethereum’s security in the long run. Citing the Proof-of-Stake (PoS) model of Ethereum, Kim noted that the security of the network is closely linked to the value of its token. So, if supply keeps rising unchecked, it could impact ETH’s price stability and, in turn, the network’s overall security.
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Mayowa is a crypto enthusiast/writer whose conversational character is quite evident in his style of writing. He strongly believes in the potential of digital assets and takes every opportunity to reiterate this. He's a reader, a researcher, an astute speaker, and also a budding entrepreneur. Away from crypto however, Mayowa's fancied distractions include soccer or discussing world politics.
