Under the proof-of-work method, more than 5.5 million additional ETH will be in circulation, causing the inflation rate to drop to -0.23%.
According to data from ultrasound.money, the supply of the Ethereum network has decreased by 417,413 ETH since the transition to the Proof of Stake (PoS) consensus mechanism in September 2022. In the 540 days since the merger, 1,509,991 ETH has been destroyed, while only 1,092,578 ETH have been newly issued to the network, resulting in a net supply reduction.
As of now, the market cap of ETH withdrawn from supply is $1.653 billion, with an annual inflation rate of -0.23%.
Meanwhile, Bitcoin’s supply increased by 1.716% over the same period. This highlights the different monetary policies of the two largest cryptocurrencies, as Bitcoin maintains predictable issuance rules. Therefore, Ethereum's supply changes now depend on the balance between staking rewards and transaction fee burning.
According to Ultrasound.money’s proof-of-work (PoW) simulation, if the Ethereum network had not switched to PoS, the supply of Ethereum would have increased by more than 5.5 million ETH during the same period. Under the PoW model, the simulation shows that at the same 1.5 million ETH burn rate, 7,031,556 ETH would be issued, resulting in a post-merger net increase of 5,521,564 ETH. According to the simulation, the value of these ETHs would be $21.865 billion, representing a theoretical inflation rate of 3.26%
This stark difference highlights the deflationary impact of Ethereum’s new consensus design compared to previous mining-based systems. The shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) significantly reduces the amount of new ETH issuance, as the network is now secured through validators staking ETH, rather than PoW miners. This shift, coupled with the continuous burning mechanism introduced by EIP-1559, has put downward pressure on Ethereum’s supply growth.
According to real-time data, the current total circulating supply of Ethereum is 120,103,624 ETH. At the same time, according to PoW simulations, the supply would reach 125,625,188 ETH if miners were still operating in the old model.
The reduction in supply since the merger is in line with the Ethereum community’s vision of making ETH an asset that deflates over time, as opposed to Bitcoin’s fixed inflation rules. Advocates believe that the combination of staking rewards and fee burning will continue to offset new issuance, potentially causing ETH to enter a period of net negative growth.
An increase in Ethereum network fees has contributed to a rise in deflationary behavior over the past seven days, reaching -1.435%. Furthermore, even under PoW, its inflation rate will drop to 1.911% due to the surge in network activity and its correlation with the burning mechanism.
However, critics argue that the move to PoS centralizes control of the network into the hands of major staking entities and exchanges. Some have warned that the concentration of staked ETH could undermine Ethereum’s decentralization and security guarantees compared to Bitcoin’s more decentralized mining network.
As Ethereum continues to evolve under the new PoS regime, while Bitcoin maintains its established PoW model, observers will be watching closely to see how their respective supply dynamics and security tradeoffs unfold. Due to the upcoming Bitcoin halving, its issuance will be cut in half, bringing its inflation rate down to 0.8%, less than 1% different from Ethereum. However, the circulating supply of Bitcoin is fixed and will eventually reach zero inflation. Ethereum’s inflation rate is related to network activity and the amount burned through network transactions.
Still, ETH’s deflationary trend over the past 540 days, ahead of Bitcoin’s first halving since the merger, gives us a first look at the potential future of the two largest cryptocurrencies.
The long-term sustainability and impact of both networks remains to be seen, with Bitcoin currently having a market capitalization of $1.3 trillion and Ethereum not far behind with a market capitalization of $478 billion.
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