The Ethereum network’s “Dencun” upgrade, implemented earlier this year, has led to a significant decrease in transaction costs on scaling networks. While this is good news for users, it has also had an unintended consequence: a reduction in the amount of ether being “burned” or removed from circulation.
Ethereum’s Deflationary Trend
In 2021, the Ethereum network underwent the London hard fork, which introduced a burning mechanism for transaction fees. Since the merge upgrade to Proof-of-Stake (PoS) in 2022, the network has become mostly deflationary, with the circulating supply decreasing over time.
However, in recent months, the Ethereum supply has become inflationary again. According to Ultrasound.money, the network has been experiencing inflation since April 14th, with a total increase of 112,000 ethers during this period.
The Dencun Upgrade’s Impact
The Dencun upgrade, which brought changes such as proto-danksharding, has led to a significant reduction in transaction fees on layer-2 networks. While this has been beneficial for users, it has also reduced the amount of ETH burned, contributing to the current inflationary trend.
Despite the recent increase in supply, the overall trend is still deflationary, with more than 344,000 ETH removed from circulation since the September 2022 Merge. In total, over 1.7 billion ETH has been removed from circulation, while over 1.3 billion ETH has been created.
As activity on the Ethereum network increases, more ethers will be destroyed, which could make the currency deflationary again. While the current inflation is not a disaster, a decrease in supply would be bullish for the Ethereum price in the long term.