According to CryptoPotato, Ethereum's status as an ultra-fast monetary system is increasingly being called into question due to its rapidly increasing supply. Since mid-April 2024, roughly a month after the Ethereum network underwent the Dencun upgrade, more than 112,000 ether (ETH) have been added to the market at the fastest daily rate after the merger.
Ethereum has seen many developments over the years that have shaped the network as we know it today. The September 2022 merger saw it move from a Proof of Work consensus mechanism network to a Proof of Stake network. In mid-March, Ethereum underwent another upgrade that reduced the transaction fees of its Layer 2 networks by nearly 4x and boosted the blockchain's scalability by expanding its capacity.
The Dencun upgrade introduced nine Ethereum Improvement Proposals (EIPs), including EIP-4844, which implemented proto-danksharding, a mechanism that allows for data points. Using blobs, layer 2 solutions like Arbitrum, Optimism, and Polygon have been able to send transaction data to Ethereum for collective settlement within a dedicated blobspace without additional overhead.
Before the Dencun upgrade, Ethereum implemented some upgrades to ensure it remains in a deflationary state. One such example was the London upgrade in August 2021, which introduced a mechanism that blocks the trading of Ethereum with each transaction by burning a portion of the network's gas fees. The merger reinforced this approach to deflation and reduced the inflation rate of ETH by 90%.
However, since the Dencun upgrade, Ethereum transaction fees have been lower, meaning less ETH has been burned. On-chain analysts believe that Ethereum is no longer experiencing deflation, as the new supply of Ethereum has become positive. The amount of fees burned on Ethereum is no longer positively related to increased network activity; Lower fees are burned regardless of the number of users transacting on the network.
Despite this, the total supply of ETH since the merger has decreased significantly, with a total decrease of 345,000 ETH. About 1.36 billion ETH was issued, but more than that was burned. As the inflation rate of Ethereum increases after Dencun, the purchasing power of ETH is declining, which may negatively affect investors. At the time of writing, ETH is worth $3,374, down 4.8% in the past week in relation to the decline in the cryptocurrency market.
