Ethereum
Ethereum no longer an ‘ultrasound currency’ after Dencun upgrade: analysts
Ethereum’s latest upgrade may have worked a little too well, leading to unfortunate consequences for long-term Ethereum (ETH) investors.
As announced, the Dencun hard fork reduced transaction fees by over 90% on several layer 2 Ethereum networks shortly after going live on March 13. Median Ethereum transaction fees today are up to four times lower than pre-Dencun when comparing periods of similar network activity, according to market intelligence platform CryptoQuant.
However, with users paying fewer fees, the Ethereum network is now burning the circulating supply of ETH at its slowest rate since the merger in September 2022. In fact, the burn rate is now so low that ETH has once again become an inflationary currency. regularly emitting more units than it burns in a given period.
“We conclude that at the current rate of network activity, Ethereum will no longer be deflationary, and the ‘ultrasonic’ money narrative is likely dead or would need much higher network activity to come back to life “said CryptoQuant analysts in a weekly article. research report Wednesday.
“Ultrasonic money” became a popular nickname for Ethereum after the merger, which changed the consensus mechanism of the second-largest cryptocurrency by market capitalization from proof of work to proof of stake. The upgrade also reduced the issuance rate of new ETH by 90%, bringing it below the amount the network spent on fees.
Ethereum faithful have eagerly used this fact to harass Bitcoiners, who have proudly defended Bitcoin (BTC) as “sound money” thanks to its fixed supply of 21 million coins. Theoretically, Ether was now a superior “ultrasound currency” with an actively diminishing supply, making it a better long-term store of value.
But with ETH’s inflation rate back above zero, that argument is gone – and a resumption of network activity may yet fail to bring it back. As CryptoQuant noted, fees burned on Ethereum were positively correlated with network activity until Dencun, after which they fell like a rock.
According to the open source dashboard ultrasound.moneyEther’s current inflation rate is 0.559% per year, still higher than Bitcoin’s 0.835% rate after last month’s halving.
Edited by Ryan Ozawa.