Ethereum Annual Inflation Rate 0,5%, High or Low?

Bittime - Since the start of April 2024, Ethereum has seen its number of coins in circulation increase by 228,000 ETH, or approximately $602 million at current market value. 

If this trend continues, Ethereum could experience annual inflation of up to 600,000 coins, with a value of around $1.59 billion. This gives an annual inflation rate of around 0.5%.

Causes of Ethereum Inflation

This inflation rate occurred because Ethereum's on-chain activity has decreased since early April. This drop resulted in gas fees, or transaction fees on the Ethereum network, remaining below 2 Gwei for quite a long period of time. 

This low gas fee has an impact on the amount of ETH produced being greater than the amount of ETH destroyed through the burning process. In simple terms, when transaction activity on the Ethereum network is low, gas fees also decrease. 

Read Also: Number of New Ethereum Wallet Addresses Is at Lowest Point This Year 

Low Ethereum Gas Fees

Low gas fees mean less ETH is destroyed, while ETH production from mining or staking continues. The result is that the amount of ETH circulating on the market increases, which triggers inflation.

Over the last four and a half month period, the total amount of ETH in circulation increased from 120,063,605 to 120,291,622. This means, every day, there is an additional around 1,652 ETH entering circulation. 

If Ethereum's on-chain activity remains as low as it is currently, it is estimated that the amount of ETH in circulation could increase to 600,000 ETH in one year.

Level Yearly Ethereum Inflation 

Although an annual inflation figure of 0.5% may sound small, for a digital asset like Ethereum, it is still something to be aware of. Inflation essentially reduces the relative value of an asset as the number of units in circulation increases. 

However, in the context of crypto assets, this inflation rate is still relatively low compared to traditional assets such as fiat currencies which often experience much higher inflation.

Even so, for Ethereum investors and users, it is important to understand the long-term impact of this inflation. One immediate impact is the potential for Ethereum's value to decline if supply continues to increase without a commensurate increase in demand.  

Read Also: Ethereum Only Burns 210 ETH, a Record Low This Year!

Impact on the Ethereum Ecosystem

This inflation trend could also impact the Ethereum ecosystem as a whole. As a blockchain platform used for various DApp, smart contracts, and asset tokenization, Ethereum relies on its economic stability to attract developers and users.

If inflation continues, there could be a shift in how developers and users utilize the Ethereum network. Low gas fees may be beneficial for users who want to make transactions with low fees. However, continued inflation could harm the long-term value of Ethereum itself.

How Does Ethereum Handle Inflation?

To deal with this inflation problem, there are several steps that Ethereum can take. One of them is introducing more aggressive mechanisms to reduce the amount of ETH in circulation, such as increasing the amount of ETH destroyed every time a transaction occurs (burning).

Additionally, increased on-chain activity can also help reduce the impact of inflation. With the increasing use of Ethereum for various applications, gas fees will increase again, thereby increasing the amount of ETH destroyed through burning. This can help maintain a balance between ETH supply and demand in the market.

Read Also: Ethereum Volatility Exceeds Bitcoin, Opportunity or Risk?

How to Buy Crypto with Bittime

You can buy and sell crypto assets in an easy and safe way through Bittime. over is one of the best crypto applications in Indonesia which is officially registered with Bappebti. 

To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet. For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application. 

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