Title: Ethereum Continues to Face Challenges Despite its Dominance in the Web3 World
Introduction:
Ethereum, the leading altcoin in terms of market value, is undoubtedly the most suitable blockchain to power the Web3 world. It hosts numerous popular protocols and boasts a higher user activity, number, quality, and segment compared to its alternatives. However, there are certain disappointments that have emerged.
Ethereum and Inflation:
The expectation was that Ethereum’s network would become deflationary following the elimination of miner rewards through the Merge. Initially, this was the case, as a significant amount of ETH supply was burned, resulting in a shrinking circulating supply. However, the Dencun upgrade brought about a change. According to CryptoQuant data, the circulating supply increased by 0.1 million just two days after the mainnet update, marking the beginning of the first inflationary period since Ethereum transitioned to the proof-of-stake consensus model in September 2022.
Ethereum and Its Future:
Ether currently faces several challenges. Legal operations have been launched almost simultaneously against entities like the Ethereum Foundation, Uniswap, ConsenSys, and Robinhood, with the SEC specifically targeting the Ethereum ecosystem. Additionally, while falling transaction fees are positive, they have reintroduced inflation.
Ultrasound/Money data reveals that over 419,713 Ether has been permanently removed from circulation since the Merge. However, the Dencun update, although making median transaction fees four times cheaper, has caused the burned fees to no longer cover the rewards, resulting in a reversal of the deflationary trend.
Unless there is a significant increase in transaction volume on the network, Ethereum may continue to be inflationary. However, if activity and interest in Ethereum grow, a reasonable increase in supply may not adversely affect the price. The challenge now is that the deflation narrative no longer motivates the bulls.
Disclaimer: The information provided in this article does not constitute investment advice. Investors should be aware of the high volatility and risks associated with cryptocurrencies and should conduct their own research.
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