Why Ethereum supply continues to increase after the merger; Ether is finally anti-inflammatory?

چرا عرضه اتریوم پس از مِرج همچنان در حال افزایش است؛ اتر بالاخره ضدتورمی می‌شود؟

With the update of Merge and the change of the Ethereum network mechanism from proof of work to proof of stake, the energy consumption and the amount of environmental pollution produced by the blockchain of this digital currency have been reduced to a great extent. However, in Ethereum’s current monetary system, for Ether to become an anti-inflationary asset, transaction fees would need to be higher than current figures.

To GazArash Crypto Briefing, Ether supply continues to increase despite Ethereum network mechanism change; Of course, at a much lower speed than when using the proof-of-work consensus mechanism and during the activity of miners.

Why Ethereum supply continues to increase after the merger;  Ether is finally anti-inflammatory?
Ethereum supply growth chart after Marj update.

According to website data, Ethereum’s circulating supply has increased by around 1,910 units since Marj’s update on Thursday. Now, if Ethereum continued to use the proof-of-work consensus mechanism instead of proof of stake, this growth of 1,910 units would be about 37,169 units!

Why Ethereum supply continues to increase after the merger;  Ether is finally anti-inflammatory?
Comparison of the supply growth rate of Ethereum (with Proof of Stake model), Bitcoin and Ethereum assuming the use of Proof of Work model after Marj update.

It’s true that the growth rate of Ethereum’s circulating supply has slowed down a lot since the Marj update, but some users thought that this date upgrade could immediately deflate the Ethereum monetary system.

Unlike inflationary systems, in an anti-inflationary monetary system, the supply of an asset decreases over time. Until 12 hours after Marj’s update, these conditions were maintained and Ethereum supply decreased by 248 units. However, after a while supply growth resumed and moved to new highs.

Having said that, can it be said that Ethereum has failed to fulfill its promises regarding the Marj update? The short answer is no.

Ethereum and a new monetary policy

Before Marj’s update, 13,000 Ether units were distributed daily between Ethereum network miners and another 1,600 units were distributed between consensus layer validators (Beacon Chain). At that time, the circulating supply of Ethereum increased by 4.62% annually.

With the merger of the consensus layer and the execution layer of Ethereum, where miners used to operate, the distribution of rewards among miners was stopped; This means that after Marj, the speed of supplying new ethers in the market has decreased by 89.4%.

In addition, Ethereum launched the EIP-1559 improvement project in August 2021 (Aug 1400), which included a mechanism to burn a portion of the network’s transaction fees. According to this plan, which has been implemented for more than a year, a part of the amount paid by users for each transaction is considered the basic fee and is automatically removed from the network cycle. Data from the website also shows that a total of 2.62 million Ethereum units have been burned since the launch of the EIP-1559 project (408 days ago).

The cost of conducting a transaction on the Ethereum network varies depending on the number of people or algorithms that use the blockchain at any given time. Currently, the cost of Gas in the Ethereum network is about 12 Gwei (0.0000000211 Ether). This rate reaches 200 Gwei during bullish market trends and 100,000 Gwei in some special cases. According to the Ethereum Foundation, in order to fully offset the supply of Ethereum paid to validators, the price of gas must be at least 16 Gwei to burn the same amount of ether on the network.

In other words, if the price of gas in the Ethereum network is less than 16 Gwei, then the supply of Ethereum will continue to increase, and if it is more than 16 Gwei, the supply of Ethereum will decrease.

It is necessary to point out once again that even if the supply of Ethereum continues to increase in these days after Marj, the speed of supply of new units in this network has decreased significantly and less effectively. Without changing the mechanism of Ethereum to proof of stake, the supply of Ethereum has increased by 37,169 units instead of 1,910 units since Thursday!


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