Key Points
- Ethereum’s supply has been increasing for 73 consecutive days, sparking concerns about inflation.
- The EIP-4844, which was part of the Dencun upgrade, is believed to be the cause of this inflation.
Ethereum (ETH) appears to be moving away from its deflationary trajectory after experiencing its longest period of inflation since transitioning to a proof-of-stake model in September 2022. Since mid-April, over 112,000 ETH have been added to the overall supply of the world’s second-largest cryptocurrency, according to data from ultrasound.money. This has led to questions about the network’s long-term sustainability.
EIP-4844’s Impact on Ethereum’s Inflation
The Dencun upgrade, which took place in March, is being blamed for this inflation. The upgrade included nine Ethereum Improvement Proposals (EIPs), with EIP-4844 being the most notable. EIP-4844 introduced “blobs”, a mechanism that separates and temporarily stores transaction data, reducing fees on Ethereum’s layer 2 networks like Arbitrum and Optimism. This proposal is believed to be the cause of the inflation.
EIP-4844 was successful in reducing transaction fees, but it appears to have had unintended consequences. Since its implementation, the total amount of ETH burned on the mainnet has significantly decreased. Ethereum’s proof-of-stake mechanism traditionally burns a portion of transaction fees, reducing the total supply over time. However, the new data storage method seems to have disrupted this burning mechanism, leading to the current inflationary trend.
Understanding the Overall Supply
Despite the growing supply trend, it’s important to note that the total ETH supply has actually decreased significantly since the Merge. More than 1.5 billion ETH have been burned, with only 1.36 billion added. This means that there has been a net reduction of roughly 345,000 ETH (over $1.1 billion).
The long-term impact of EIP-4844 on Ethereum’s supply dynamics is unclear. However, it is likely that developers will implement adjustments to the burning mechanism in future upgrades to ensure a healthy balance between transaction fees and supply control.