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After Ethereum merger: number of newly created ETH drops by 98%

 


The number of ETH issued (created) every day has decreased drastically since the merge. Ethereum is thus on the way to becoming a deflationary asset - with possible positive effects on the price. But would a deflationary ETH really make sense?


According to Ultra Sound Money data, Ethereum issuance rate has dropped by 98% since the merge.


Since Ethereum's consensus mechanism switched to proof-of-stake with the merge , the total ETH count increased by 7,385.47. Had the blockchain continued to use the Proof-of-Work (POW) consensus mechanism, it would have added 12,422.13 ETH instead.


Furthermore, ETH supply gained 0.34% in the last 24 hours. Under POW, the supply of the cryptocurrency would have increased by 3.86% over the same period.


However, the merge is not the only reason for the decline in the issuance rate. For example, network activity and thus the number of transactions had already dropped significantly before the merge. As miners are rewarded for transactions with new cryptocurrencies , but fewer transactions took place, the number of newly issued ETH also decreased.


However, the drop in demand had another benefit: the level of “gas fees” (costs for Ethereum transactions) also fell significantly in recent weeks.


Could Ethereum be deflationary soon?

So far, Ethereum is not a deflationary asset. The number of newly created ETH is still larger than the number of ETH burned in Ethereum transactions, ie destroyed forever. The offer is therefore still growing - albeit much more slowly than before the merge.


So on September 25, 2022 around 519 ETH was burned while 772 new ETH tokens were created.


Nevertheless, Ethereum does not necessarily have to become a deflationary asset after the merger, as Bitmex founder Arthur Hayes explained. According to Hayes, a rise in prices associated with deflation would jeopardize the goal of moving to a “decentralized computer”. If the Ethereum price rises, the gas fees (in US dollars) will also rise - since they are paid in ETH. High transaction costs, in turn, make the network unattractive for mass use. Hayes therefore argued that the development team should focus on reducing the emission rate.


It will probably take a while before the cryptocurrency becomes really deflationary. According to Lucas Outumoro, IntoTheBlock's Head of Research, Ethereum will likely remain slightly inflationary for the time being after the merge , unless demand increases significantly.


ETH price falls after merger

Despite the decline in the issuance rate and the successful completion of the merge, the Ethereum price delivered a poor performance. The Ethereum price fell by almost 10% in the last 7 days.

The ETH price is currently around the 1,300 US dollar mark and at the price level of July 2022.


Many analysts assumed that the merger will have a positive impact on the performance of ETH price . However, the price fell by around 20% after the merge and lost all price gains before the merge.


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