- Ethereum’s latest upgrade, the Dencun hard fork, has led to a significant decrease in transaction fees but has also resulted in Ethereum becoming an inflationary currency again.
- The burn rate of the circulating ETH supply is now at its slowest since the Merge in September 2022, leading to a regular issuance of more units than are burned.
- Despite the reduced fees, the Ethereum network activity needs to significantly increase for the cryptocurrency to return to being deflationary.
Ethereum’s Dencun hard fork has slashed transaction fees but has also led to Ethereum becoming an inflationary currency again, impacting its status as ‘ultrasound’ money.
Dencun Hard Fork’s Impact on Ethereum
Ethereum’s latest upgrade, the Dencun hard fork, has resulted in a significant decrease in transaction fees on multiple Ethereum layer-2 networks. However, this has also led to an unwelcome consequence for long-term Ethereum investors. With users paying less in fees, the Ethereum network is now burning the circulating ETH supply at its slowest rate since the Merge in September 2022. This has led to Ethereum becoming an inflationary currency again, issuing more units than are burned in a given period.
Ethereum’s Status as ‘Ultrasound’ Money
The term ‘ultrasound’ money became a popular nickname for Ethereum after the Merge, which changed the consensus mechanism for the second largest cryptocurrency by market cap from proof of work to proof of stake. The upgrade also cut the issuance rate of new ETH by 90%, bringing it below the amount that the network burned through fees. However, with the current rate of network activity, Ethereum will not be deflationary again, and the narrative of ‘ultrasound’ money has likely ended. A revival in network activity may still fail to bring it back.
Implications for Ethereum Investors
For Ethereum investors, this development could be concerning. The argument that Ethereum is superior to Bitcoin as a long-term store of value due to its decreasing supply is no longer valid. Despite the reduced fees, the Ethereum network activity needs to significantly increase for the cryptocurrency to return to being deflationary. According to the open-source dashboard ultrasound.money, Ether’s current inflation rate is 0.559% per year—still higher than Bitcoin’s 0.835% rate following last month’s halving.
Conclusion
The Dencun hard fork has led to a significant decrease in Ethereum transaction fees, but it has also resulted in Ethereum becoming an inflationary currency again. This development has implications for Ethereum investors and the cryptocurrency’s status as ‘ultrasound’ money. The Ethereum network activity needs to significantly increase for the cryptocurrency to return to being deflationary. As the crypto market continues to evolve, investors need to stay informed about these developments to make informed decisions.
