Here’s why Ethereum’s annual inflation rate has dropped by 50%

Sahana Kiran
Source – Unsplash

Thanks to the Merge, the Ethereum [ETH] network has been the talk of the crypto town. As the community preps to transition into Proof-of-Stake [PoS], there has been an immense amount of background work by the developers. In addition, they seem to have been dealing with backlash from miners who are expected to lose their bread and butter. Therefore, an array of them urged abolishing EIP-1559.

What is EIP-1559 anyway? This Ethereum Improvement Proposal [EIP] aimed at boosting the mining speed of ETH as well as incentivizing it. Along with this, it brought about the burning of base fees in transactions related to the network.

Chandler Guo, a prominent miner, was trying to fork the network. With this, Guo hoped to retain miner activity. Other miners and Guo decided to take a jab at the Ethereum network and called out EIP-1559.

But apart from this, EIP-1559 comes with its own set of benefits. While this proposal was expected to keep the network’s inflation in check, the community did not expect a sudden drop in the same.

According to Colin Wu, a Chinese crypto journalist, the annual inflation rate of Ethereum has plummeted by 50.77 percent.

Furthermore, the current amount of ETH burned in the network had surged beyond 2.6 million. This was reportedly worth $3.76 billion, considering the current price of ETH.

Ethereum is becoming completely deflationary

As mentioned earlier, the annual inflation rate of Ethereum has dropped drastically. However, the network aims to be completely deflationary; however, this would be possible only with the Merge and Ethereum 2.0.

Speaking about the same, Meltem Demirors, CoinShares chief strategy officer, had previously said,

“Many of these expectations are likely too optimistic in the short-term and will become more material in the long-term. The nominal amount of gas burned won’t outpace network inflation.”

While Ethereum is on its way to becoming an utterly deflationary network, the price of its native asset dropped by 3 percent over the last 24 hours. At press time, ETH was trading for $1,451.