Since the merge update that occurred on September 15, 2022, the Ethereum network has removed over 2 million ether (ETH), the protocol’s native asset, from circulation.
Despite the high amount of destruction, Ethereum is showing a slight inflationary trend today. Since that update, approximately 2.7 million ETH have been minted. 0.17% more tokens created than deleted.
The Ether Combustion System was introduced by Ethereum Improvement Proposal 1559 (EIP-1559), which became effective in August 2021.
This implementation has changed the network pricing structure. Instead of all fee payments being paid to the validator, A portion of each commission is permanently destroyedthus reducing the total supply of ETH.
Then, with The Merge, Ethereum abandoned the Proof of Work (PoW) mechanism by which miners secure the network in favor of the Proof of Stake (PoS) mechanism by which validators lock (or “stake”) Ether, verify transactions, and create new blocks.
The combination of both changes changes the dynamics of the ether supply, Activity on the network and rewards distributed to validators.
The actual net effect is inflation, but fee burn tends to increase during periods of high usage demand, which in turn reduces supply and leads to deflation.
(Tag to translate) Blockchain
