How deflationary is Ethereum’s digital currency, Ether? | Crypto News
Ether has outperformed Bitcoin in terms of price appreciation this year, even as both cryptocurrencies hit record highs.
Posted on November 2, 2021
Ethereum fans are jumping on the anti-inflationary narrative that has traditionally been one of Bitcoiners’ main selling points.
Ether, as the native digital currency of the Ethereum blockchain is known, has seen the difference between the number of issued and destroyed tokens turn negative over the past seven days in total for the first time, according to blockchain monitoring site watchtheburn. .com. The change comes as Ether outperforms Bitcoin in terms of price appreciation this year, even as both cryptocurrencies hit record highs.
The week-long episode of negative issues prompted crypto enthusiasts on Twitter to proclaim Ether to be deflationary, and now a possible hedge against looming inflation they have long warned is coming into the mainstream financial system . Bitcoin has been traded this way since its inception because it has a strict supply cap of 21 million coins which will not be reached until around the year 2140. Ether does not have an explicit supply limit.
ETH will exceed the market capitalization of gold within 5 years.
ETH is the most deflationary asset in the world with no supply floor.
Both gold and Bitcoin are inflationary relative to the tight supply of ETH.
– Token state (TokΞnizΞ ThΞ World ΞIP-1559) 🦇🔈 (@tokenstate) October 30, 2021
Ethereum is a deflationary asset. $ ETH
– Ethersole (💎, 💎) (@SickDudeTight) November 1, 2021
But not everyone is so sure that the negative emission changes the traditional theses behind Ethereum and Bitcoin.
“We see so much misinformation about how Ethereum is deflationary,” said Noelle Acheson, head of market analysis at Genesis Global Trading in New York City. “Sometimes yes, but that’s not the point” of the play, she said.
Ether benefits from a process called engraving – where coins are taken out of circulation – which was instituted after a network software update known as the London Hard Fork in August. Part of the upgrade was designed to give Ethereum the ability to process more transactions, with the goal of lowering high user fees.
After the upgrade, each transaction on the Ethereum network burns a small amount of Ether. This means that episodes of intense transaction activity, which can be accompanied by price spikes in the so-called altcoins that run on the Ethereum blockchain, can often lead to days when more coins are destroyed than minted.
Acheson explained that the developers of Ethereum designed the upgrade to make Ethereum’s fees more affordable, not to make the coin deflationary.
High levels of activity on Ethereum-based DeFi protocols – like Uniswap – have led to an increase in transaction activity, but this activity is likely to slow if prices rise too much.
Blockchains are self-correcting, Acheson said, so what will likely happen now is that as the Ethereum network draws more attention to its so-called deflationary factors, the activity of transaction will resume, resulting in higher transaction fees, which will then stop the growth of Ethereum transactions and rebalance the issuance.
“We are now seeing Ethereum moving from a tech game to maybe a store value game as well,” she said. “And we, too, it’s parallel to what we see in Bitcoin. We have the Taproot upgrade coming up next week, which sees Bitcoin go from being a game of value to also maybe a game of tech as well.