Since Ethereum implemented a "merger upgrade" last year and switched to a proof-of-stake (PoS) consensus mechanism, the cryptocurrency community has always believed that after the issuance of Ethereum dropped by 90%, such a change would make Ethereum a super-stable currency and become a super-stable currency. Consolidating Ethereum's status as a deflationary currency, its value will only continue to rise in the future. But one year later, the situation is obviously not so certain.

According to data aggregator Ultrasound.money, in the past 30 days alone, the supply of Ethereum on the entire network has surged to nearly 30,000, worth approximately US$47.9 million. The sharp increase in the circulation of Ethereum is mainly due to the significant decrease in transaction traffic on the Ethereum network, that is to say, the significant decrease in NFT transactions, and the significant decrease in DeFi transaction activity.

Since 2021, the Ethereum network has been operating on a mechanism to destroy handling fees. The more transactions there are on the network, the higher the handling fee price will be (on-chain transactions must require handling fees to complete). The higher the fee price, the more ether coins need to be destroyed, that is, permanently removed from the Ethereum network.

However, Ethereum's handling fees have dropped so low recently that the average online transaction now costs 7 gwei, which is only $0.24. The average transaction cost on NFT marketplace platform OpenSea is approximately $0.94. This is in stark contrast to just over a year ago, when during Yuga Labs’ Otherside Series Sale last May, Ethereum network users burned $157 million worth of ether to mint 55,000 virtual land deeds. In other words , the handling fee alone per transaction averaged $2,854.

While low fees may benefit general Ethereum users, they will also result in fewer Ethereums being destroyed, thus causing a surge in the supply of Ethereum across the network.

Is Ethereum becoming inflationary again?

Yes, it is, and that's because Ethereum fees, which are supposed to burn ethers, are everywhere but not on Ethereum: its own L2s (Arbitrum, Polygon, etc.) and EVM competitors (BNB, Avalanche C, etc.)

Limiting L1 dooms cryptocurrencies. pic.twitter.com/cE82gwUbZR

— Nikita Zhavoronkov (@nikzh) September 23, 2023

Ethereum’s recent inflationary trend has raised some concerns among cryptocurrency users and investors, with the main concern being that the current trend could cause trouble for Ethereum’s long-term financial health.

The critical problem with Ethereum is that its future supply is unknown, unpredictable, and potentially inflationary.

For Ethereum to be deflationary, tx fees must be high which means it must fail to scale and tx volume must not move to other crypto securities like Solana. pic.twitter.com/dITZ7RfSf6

— Joe Burnett ()³ (@IIICapital) October 2, 2023

However, the team behind Ethereum apparently doesn’t believe in such a development. Ethereum core developer Micah Zoltu said: "I speculate that no core developers care about this issue. If you look at things from a holistic perspective, it is not important."

Danno Ferrin, another Ethereum core developer, said he is not worried about Ethereum’s recent inflationary developments. He said: "It is still below the all-time high of Ethereum supply. Ethereum's short-term inflation is still much lower than other blockchains and the economy as a whole."

Global inflation has continued to rise since last year, and in the United States, last year's year-on-year price growth was the largest since 1981. In order to combat inflation, the U.S. Federal Reserve has repeatedly raised interest rates, which has also led to the continued decline in the value of cryptocurrencies such as Bitcoin and Ethereum.

This article How far is Ethereum from "deflation"? Data: ETH supply surges by 30,000 in 30 days. First appeared on Blockchain.