In this article, you will learn about is Ethereum deflationary. A new academic paper claims that Ether could be a better store of value than Bitcoin. While BTC has won plaudits for having anti-inflation characteristics like gold, recent updates to the Ethereum blockchain have gone one step further by making cryptocurrencies deflationary.
Is Ethereum Deflationary?
Ethereum (ETH) is not deflationary. In fact, Ethereum is designed to be inflationary, meaning that the supply of ETH is designed to increase over time. Currently, Ethereum uses a proof-of-work (PoW) consensus mechanism, which rewards miners with new ETH tokens for validating transactions and securing the network.
However, Ethereum is in the process of transitioning to a proof-of-stake (PoS) consensus mechanism, which will change the way new ETH tokens are created. Under PoS, validators will earn rewards by staking their existing ETH tokens, rather than by mining new ones. While the specifics of how this will work are still being finalized, it is expected that the rate of new ETH creation will be reduced under PoS compared to PoW.
Despite this, Ethereum is still expected to be inflationary overall, as the rate of new ETH creation will likely continue to outpace the rate at which tokens are destroyed or lost over time. However, the rate of inflation may be lower under PoS compared to PoW , depending on the specific details of how the system is implemented.
Can Ethereum Become the World's First Deflationary Currency?
Since EIP-1559. there have been periods where the volume of ETH being burned exceeds what's created through block rewards.
A total of 1.095.029 ETH has been burned at the time of writing — and at present, it has a cash value of $4.2 billion. As ethburned.info notes: "The more Ethereum is used… the more ETH is burned."
While BTC's price has risen by approximately 94% since the start of 2021. ETH's value has rallied by more than 540% — continuing a theme that was seen in 2020.
Indeed, the likes of JPMorgan also believe that Ether could prove more attractive for investors than Bitcoin.
The investment bank says that, while the eventual normalization of monetary policy is putting downward pressure on Bitcoin as a form of digital gold, Ether may be more resistant to these headwinds because it derives its value from applications — including DeFi, gaming, non-fungible tokens and stablecoins.
Bottom Line
In time, the authors expect the issuance rate of ETH to settle at 0.98%, while BTC's supply will increase by 2% over the same period. This article is about is Ethereum deflationary.
