The total supply of Ether has officially decreased for the first time since the implementation of The Merge.
One of the biggest changes that the new Proof-of-Stake consensus mechanism introduced in Ethereum, was the Reduction of Ether emission.
The old issuance of Ether per block meant an annual inflation of the supply of around 4,2%. After the implementation of The Merge, Emissions have been reduced by almost 90%, which combined with transaction fee burning, allows Ethereum to become deflationary as network activity increases.
Just a few weeks ago, a report from the financial group Citi noted that the shift to PoS had succeeded remove about 564.000 ETH from circulation within six weeks of the Merger.
Ether is already a deflationary currency
According to data from the Ethereum tracking site, ultrasound.money, yesterday at 5:35 am (ET), the broadcast of Ether has officially become deflationary, with an annual deflation rate currently at 0,003%.
In this sense, if the Ethereum consensus mechanism had not been changed, in the same period of time, the issuance of Ether would have increased by more than 650.000 ETH (about 750 million dollars), with a rate of inflation of almost 3,6% annually.
The reduction in the issuance of Ether is good news for the future of the token. By becoming deflationary, becomes a scarce commodity, which increases its value.
Is Ether a deflationary currency?
Unlike Bitcoin, which was born as a deflationary currency, since its Maximum supply is 21 million tokens, Ether has an unlimited supply.
However, the EIP-1559 implemented a system of burning or burning that removes a certain amount of coins from circulation after each transaction. This system was implemented to improve processing capacity and reduce gas rates.
This means that during periods of high network activity, A lot of Ether is burnedHowever, when activity declines, so does burning.
It should be noted that this system was designed to improve the efficiency of Ethereum, not to make the currency deflationary, although the final result after the implementation of The Merge was this.
In this sense, some analysts, such as Noelle Acheson of Genesis Global Trading, have pointed out that blockchains are living ecosystems that, in some way, tend to “self-regulate”.
Therefore, periods of high activity, which cause deflationary emission by burning Ether, will also cause a Increase in transaction fees, which will lead to a reduction in network activity. In turn, it may lead to inflationary issuance.
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