Ethereum Price Becomes Deflationary

Recent developments to the Ethereum blockchain have finally made Ethereum a deflationary token.

Throughout 2021, Ethereum has been transitioning from a Proof of Work to a Proof of Stake consensus driven network. While this process has taken a considerable amount of time, the deflationary nature of Ethereum has finally come to pass.

EIP-1559

Under the terms of the Ethereum Improvement Protocol (EIP 1559), every Ethereum transaction, from its August 2021 release forward, consisted of a percentage burn of the final transaction as the network transitioned toward the Proof of Stake model.

Now, for the first time since the upgrade, Ethereum is officially a deflationary token as more Ethereum is being burnt than generated, which will lead to its scarcity and an increase in its future value.

While this may sound like a cause for celebration, many original Ethereum miners are less than happy with the upgrade due to the loss of fee revenue which is associated with a mining and Proof of Work consensus model.

Staking

As part of the new Proof of Stake model holders of Ethereum are able to loan their tokens back to the network to be used as a stake in order to generate passive income. The current going rate for staking Ethereum on the new network is around 4% per annum.

To date over 8.3 million Ethereum worth $34 billion have been staked and therefore locked up in contracts and taken off the open market. Together with the deflationary burn model the scarcity of Ethereum has seen the price of the token rise from $736 at the start of the year to $ 4200 today.

Now that Ethereum is officially in deflationary status this value will automatically increase with every transaction. And with the merge to the official Ethereum 2.0 main net chalked for Spring 2022 many market commentators are expecting the price of Ethereum to witness a major surge through 2022.

The last mile

Final testing is due to start in December and developers are focussing on this last mile of what has been a long and arduous process. According to a leading crypto exchange ‘Protocol Specialist’ Viktor Bunin the net issuance of Ethereum has reduced by 66% since the launch of EIP-1559 and as validators continue to replace miners the numbers will only increase.