Coinbase, one of the world’s largest digital asset exchanges, says the inflation rate on ether (ETH), Ethereum‘s Cryptocurrency, is irrelevant in the current context.
Although the inflation rate of ETH is constantly changing, the exchange explains in a report that Other elements play a crucial role in the cryptocurrency economymitigating the impact of this factor.
One of the most important aspects is that a large part of the ETH circulation is locked in the staking. This is the act of leaving cryptocurrency deposited in a smart contract in order to earn profits.
From the Beacon Network Launchthe total amount of staked ether has grown to 34 million, representing 28% of the total ETH supply, according to data from ultrasound.money.
Although the staking rate is significantly lower than other networks like Solanaremains a large net ETH supply sinkThis has far exceeded any issuance or burning since implementation, according to Coinbase.
From the Merge conducted in 2022, the issuance of ether per block was reduced, allowing burns of the cryptocurrency to exceed issuance during times of high network activity, making it deflationary.
However, this scenario changed after the Dencun update, implemented last March. Since that event, The issuance has been greater than the destruction of ETHincreasing the cryptocurrency’s circulation.
At the moment are in circulation 120,309,070 ETH and 16,957 coins entering the supply on a weekly basis.
In addition, lower network activity, driven by the proliferation of second layers and alternative networks such as Solana, has led to ETH becoming inflationary againas seen in the following graph.
ETH supply. Source: Ultrasound.money.
Ethereum fees hit all-time lows
A portion of all ETH spent on transaction fees is removed from the circulating supply through a process known as “burning.” This mechanism was introduced through the proposal EIP-1559 in August 2021, as reported by CriptoNoticias.
In every Ethereum transaction, a base fee is included that is completely burned, while an optional priority fee is given to participants to speed up transactions.
The report highlights that during periods of high activity, such as in the second quarter of 2023 and the first quarter of 2024, ETH burning has temporarily surpassed gross issuancepushing the narrative that ETH is a net deflationary asset, known as “ultrasonic money.”
However, the network has experienced inflationary periodslike the current ones, due to wide variability in ETH burningcausing constant changes in the cryptocurrency’s overall inflation rate, according to Coinbase.
Transaction fees on Ethereum have reached historic lows over the past five years, as shown in the following graph.
Ethereum fees or commissions. Source: Ultrasound.money.
This low activity is largely due to the migration of users to layer 2 networks, such as Arbitrum, Optimism and Base, which offer transactions at a much lower cost.
Staking changed everything for Ethereum
Despite these factors, Coinbase Doesn’t Believe Ethereum Inflation Will Translate Into Selling Pressure in the same way that, for example, the income of Bitcoin miners does.
The introduction of staking has radically changed this scenario. Today, ETH stakers not only retain their rewards, but also increase their staking positions.
By reducing operating costs, validators of Ethereum They have less incentive to sell their rewards immediately to cover expenses.. This allows stakers to take a longer-term view and retain their assets..
For Coinbase, Ethereum’s overall inflation rate is not a reliable indicator for gauging sustained selling pressure on ETH. As long as staking growth continues to outpace the inflation rate, the cryptocurrency will continue to enjoy stability that mitigates any significant inflationary concerns.
Still, the price of the cryptocurrency ether (ETH) not having a good time and is far from its all-time high. According to Coinbase’s explanation, this cannot be attributed to inflation but to a lack of demand in the market.
Crypto Keynote USA
For the Latest Crypto News, Follow ©KeynoteUSA on Twitter Or Google News.