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ETH Turns Deflationary as Gas Fees Increase Amid Recent Price Rally

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Ethereum becomes inflationary as the gas prices increase amid the most recent price rally.

Ether has turned deflationary as the gas fees hit 15 gwei amid the most recent price rally. This happens months ahead of the much-anticipated Shanghai upgrade, which promises to enable ETH stakers to withdraw from the Beacon Depositor Contract.

  • Data from ultrasound.money reveals that ETH has turned deflationary once again. This happens for the first time since December 1st.
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Source: Ultrasound Money
  • There’s currently around 30 less ETH than there was in circulation back when the Merge took place last year, effectively making Ether a deflationary cryptocurrency, at least for the time being.
  • The reason this is possible is because of the network’s transition to Proof-of-Stake, as well as the implementation of the EIP 1559.
  • EIP 1559 was introduced back in 2022, and it activated a burn mechanism, which destroys ETH gathered from fees that are associated with verifying transactions on the network. The higher the fees, the higher the burn rate.
  • Now that Ethereum no longer runs on the Proof-of-Work consensus algorithm, the issuance of fresh ETH has diminished tremendously and coupled with the ETH burned as a result of EIP-1559, the cryptocurrency has temporarily turned deflationary.
  • It’s also worth noting that this takes place a couple of months before the release of the Shanghai upgrade. It is expected to hit the public testnet in February and the mainnet in March.
  • The upgrade is promised to enable ETH stakers to withdraw from the Beacon Depositor Contract.
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