The latest upgrade on Ethereum brought many changes to the crypto network. First, the Merge will improve efficiency and make the web more scalable. Also, ETH supply is expected to be lower in the proof of stake, making it a deflationary asset.
Usually, the miner’s reward on PoW is far higher than the stakes reward on the proof of stake network. So by that, the supply should be reduced and, in a normal circumstance, make Ethereum deflationary.
The supply of ETH has increased by more than 5,990 from the Merge day till now. However, this number is lower than it could have been under the proof of work consensus mechanism.
Also, the number is far lower than the BTC supply of 6.25 coins every ten minutes. But even with this reduced supply, ETH may still have a long way to go before becoming deflationary.
What Will Make ETH A Deflationary Asset
According to experts, ETH can become deflationary when the tokens from block subsidy are lower than the ones burned. If the number of people who transact with the coin grows higher than those who stake it, ETH will become a deflationary asset.
Also, experts believe that the transaction fee now should be 15 Gwei or 0.000000015ETH for the crypto to be deflationary.
But for now, these conditions are not existing yet. For example, Ethereum transaction fees average 11 Gwei as of September 20. Also, staking generates more tokens than burned ones.
Currently, staking levels would cause ETH yearly token supply to 603,000. But the number of ETH burned every year will only be 412,000. So the difference represents annual inflation of 191,000 ETH or 0.16%.
What’s The Hope For Ethereum?
Currently, the figures are not showing that Ethereum will become deflationary soon. But if these figures change, the expectation might work.
The only likely scenario right now is an increase in inflation. According to experts, inflation will increase if more people join staking in Ethereum proof of stake. This is because the current network has more opportunities to expand its staking activities.
For instance, Ethereum’s staking’s relative risk-reward is still more attractive than others. Also, staking is an untapped market on the newly launched PoS network. Currently, the supply of ETH in stakes is only 14%, while other cryptos have up to 50% in staking pools.
But then, a situation that could push Ethereum to become a deflationary asset is an increase in transaction fees. Experts believe that many expect the network to develop into high-volume decentralized commerce.
If Ethereum reaches that height, the transaction fee will increase, increasing the burn rate. With that, Ethereum will likely enter the deflationary territory. According to BitMEX former CEO Arthur Hayes, such a situation might make ETH bullish, pushing interest in usage, buying, and deflating the token.
But when compared to Bitcoin, many top shots, such as Arthur Hayes and Paulo Arduino, believes that ETH will not beat Bitcoin. BTC supply is fixed and is not usually affected by monetary debasement like others.