Ethereum Supply Reduction: The Impact of Proof-of-Stake

According to data from , the Ethereum network has seen a decrease in supply by 417,413 ETH since moving to a proof-of-stake (PoS) consensus mechanism in September 2022. ultrasound.money. In the 540 days since the merge, 1,509,991 ETH has been burned, while the network has issued 1,092,578 new ETH, a net loss.

At the time of writing, the market value of ETH removed from supply is $1,653,797,635, with an annual inflation rate of -0.23%.

Ethereum issuance after merge (Source: ultrasound.money)

In contrast, Bitcoin’s supply increased by 1.716% over the same period. This highlights the differences in the monetary policies of the two largest cryptocurrencies, as Bitcoin maintains a predictable issuance schedule. At the same time, the balance between staking rewards and transaction fee burnout now determines changes in Ethereum’s supply.

Proof-of-Work (PoW) simulations on the Ultrasound.money dashboard show that Ethereum’s supply would have increased by more than 5.5 million ETH over the same period if the network had not transitioned to PoS. Shown. Under the PoW model, simulations show that 7,031,556 ETH would be issued at the same burn rate of 1.5 million ETH, leading to a net increase of 5,521,564 ETH since the merger. The value of the ETH issued in this simulation would be $21,865,393,440, resulting in a theoretical inflation rate of 3.26%.

Ethereum issuance PoW simulation after merge (Source: ultrasound.money)Ethereum issuance PoW simulation after merge (Source: ultrasound.money)
Ethereum issuance PoW simulation after merge (Source: ultrasound.money)

This clear difference highlights the deflationary impact of Ethereum’s new consensus design compared to previous mining-based systems. The move to PoS has led to a validator staking ETH securing the network on behalf of his PoW miner, which has significantly reduced new ETH issuance. This change, coupled with the ongoing burn mechanism introduced in EIP-1559, is putting downward pressure on Ethereum supply growth.

According to real-time data, the total circulating supply of Ethereum is currently 120,103,624 ETH. On the other hand, PoW simulations estimate that if the miner had still powered the network with the old model, the supply would have reached 125,625,188 ETH.

The decline in supply since The Merge is consistent with the Ethereum community’s vision of deviating from Bitcoin’s fixed inflation schedule and making ETH a deflationary asset in the long run. Proponents believe that the combination of staking rewards and fee burning will continue to offset new issuance, potentially resulting in periods of supply volatility that are net negative.

Over the past 7 days, the increase in ETH network fees has helped accelerate the deflationary behavior, increasing to -1.435%. Moreover, even under PoW, that inflation rate would have dropped to his 1.911% due to the spike in network activity and correlation with the burn mechanism.

Ethereum 7-day inflation rate (Source: ultrasound.money)Ethereum 7-day inflation rate (Source: ultrasound.money)
Ethereum 7-day inflation rate (Source: ultrasound.money)

However, critics argue that the move to PoS has centralized control of the network in the hands of major staking entities and exchanges. In contrast to Bitcoin’s decentralized mining network, some have warned that the concentration of staked ETH could undermine Ethereum’s decentralization and security guarantees.

As Ethereum continues to evolve under the new PoS regime and Bitcoin retains its established PoW model, observers will be watching closely to see how their respective supply dynamics and security tradeoffs play out. It will be. As the amount of Bitcoin issued approaches half due to the upcoming halving, the inflation rate is expected to fall to 0.8%, within 1% of Ethereum. However, the supply of Bitcoin is fixed and the inflation rate will eventually fall to zero. Ethereum’s inflation rate is related to network activity and the amount consumed through network transactions.

Still, ETH’s deflationary trend over the past 540 days offers an early glimpse into the potential future of the two largest cryptocurrencies ahead of the first Bitcoin halving since the merge. The long-term sustainability and impact of both networks remains to be seen, but Bitcoin is currently thriving with a market capitalization of $1.3 trillion, followed by Ethereum at $478 billion.

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