The Dencun Upgrade Makes Ether Inflationary Again, Analysts Say
The recent Dencun upgrade on the Ethereum network has caused a stir in the cryptocurrency world, with analysts at data firm CryptoQuant warning that ether is becoming inflationary once again. This development could potentially strip ether of its status as “ultra-sound” money, a characteristic that has long been associated with the cryptocurrency.
According to a report released by CryptoQuant, the Dencun upgrade has led to a significant decrease in transaction fees on the Ethereum network. As a result, the amount of ether burned has dropped to one of its lowest levels since the Merge, when Ethereum transitioned from a proof-of-work to a proof-of-stake consensus mechanism. The report also highlighted that the supply of ether is growing at its fastest daily rate since the Merge.
Analysts at CryptoQuant explained that before the Dencun upgrade, higher network activity on Ethereum resulted in higher fees being burned, leading to a reduction in ether supply. However, post-upgrade, the total amount of fees burned has become disconnected from network activity, causing ether to become inflationary.
The report concluded that unless there is a significant increase in network activity, Ethereum will not return to being deflationary. This has raised concerns about the future of ether as “ultra-sound” money, with analysts suggesting that it may need much higher network activity to regain this status.
The Dencun upgrade, implemented on March 13, 2024, allows for the storage of additional data in “blobs” on the Ethereum network, improving efficiency and reducing costs associated with Layer 2 transactions. Despite these developments, ether is currently trading at around $3,018, with a slight 1% decrease in the past 24 hours.
As the cryptocurrency market reacts to these changes, it remains to be seen how Ethereum will navigate its new inflationary status and whether it can reclaim its reputation as a reliable store of value in the future.
