As ETH burn increases due to FTX-induced market uncertainty, Ether becomes deflationary.

Since the parent network of the token, Ethereum, altered the way it handles transactions over two months ago, Ether (ETH) has entered a deflationary phase for the first time.

Ethereum is the second-largest cryptocurrency behind Bitcoin in terms of market capitalisation. Additionally, it is a platform for decentralised computing that supports a wide range of applications, including a number of decentralised financial (or DeFi) apps and services.

The annualised inflation rate for the second-largest cryptocurrency, according to data from Ultrasonic money, has decreased to 0.029%, meaning that the top smart contract blockchain is currently burning more ether than what is being created.

Since Ethereum switched from a proof-of-work (PoW) consensus method to a proof-of-stake (PoS) consensus mechanism for confirming transactions on September 15, the negative inflation rate indicates that ether's net supply has decreased by 5,598. If Ethereum had continued to use the PoW technique, the supply of ether would have increased by around 670,000.

By switching the entities in charge of maintaining the blockchain from miners to validators and drastically reducing the amount of newly created ETH, the upgrade known as Merge put ether on the path to becoming a deflationary asset. Following the Merge, Ether's annualised inflation rate plunged from over 3.5% to almost nil.

Despite this, it took over two months for the deflationary milestone to be attained. This was due to a rise in the number of ether burned following a recent uptick in Ethereum network activity. That indicates that the degree of network usage has a significant impact on ether's potential as a deflationary asset.

Ethereum Improvement Proposals (EIPs) specify Ethereum platform standards such as core protocol definitions, client APIs, and contract standards. Network updates are covered separately in the repository for Ethereum Project Management.

According to Etherscan, the number of ETH burned on Wednesday was above 5,000, the greatest amount for a single day since June. Only in the last three days have more than 13,000 ETH been burnt. In August of last year, a mechanism to burn a portion of user fees was created through the Ethereum Improvement Proposal (EIP)-1559. The EIP is essentially linked to the amount of ether consumed and network usage.

The recent rise in network activity may have been caused by the market instability brought on by the demise of the cryptocurrency exchange FTX. Since FTX's liquidity issues were known, millions of dollars' worth of cryptocurrency funds have been transferred on-chain. Selected users of FTX were given access to Ethereum withdrawals on Thursday.

Once the fear caused by FTX has subsided, the favourable adjustment in ether's tokenomics could help the cryptocurrency outperform bitcoin and the larger market. As of now ether is trading at $1,270, a 1.7% daily loss.

Checkout in detail ETH Price Prediction for year end 2002 and coming year 2023.

What are you predictions for ETH? Will it go as high as $1134.1683 by the end of 2022?

My name is Adam and I am Crypto Enthusiast. I have 3 years of experience in blockchain & crypto as a market analyst. Joined recently Coinpedia as a Research Analyst.