Ethereum Runs Towards Deflation With Upcoming Update, Leaving Bitcoin Behind

Zinger Key Points
  • The transition to proof-of-stake is expected to decrease Ethereum's issuance rate by about 90%.
  • An analysis finds that Ethereum would become 5% deflationary following its full transition away from PoW and mining.

Ethereum ETH/USD has been recently outperforming leading cryptocurrency Bitcoin BTC/USD as investors hope that a network upgrade will soon make the coin a deflationary asset.

What Happened: As of press time, market data reveals that Ethereum's price increased by over 15% over the last 7 days — exceeding $3,000 for the first time in two weeks — whereas Bitcoin's price rose by about 6.5% over the same time.

While it must be admitted that Bitcoin is still faring better when considering the entirety of 2022 (a loss of 10% for Bitcoin compared to 20% drawdown for Ethereum) there is no denying that Ether is seeing a significant buildup in positive momentum.

See Also: BITCOIN VS ETHEREUM

As Benzinga explained in an early February analysis, Ethereum is expected to become deflationary after it leaves proof-of-work (PoW) and mining behind and completely transitions to proof-of-stake (PoS), a staking protocol.

The reason is that this transition is expected to decrease Ethereum's issuance rate by about 90% and ever since the implementation of Ethereum Improvement Proposal (EIP) 1559 as part of the London hard fork the network is burning the near-totality of its transaction fees — which are expected to exceed the issuance rate after the transition is completed.

Crypto data firm IntoTheBlock recently estimated that following the full transition to PoS and staking, "the amount of ETH issued is projected to drop by 90%, which would lead similar levels of fees [as those seen so far] to reduce Ether’s supply by as much as 5% a year."

In other words, if Ethereum's burn rate would stay the same, the coin would become 5% deflationary following its full transition away from PoW and mining.

On Wednesday morning, Bitcoin was trading at $42,010.26, while Ethereum was priced at $2,947.56, both down about 2% over the past 24 hours.

Posted In: Proof Of StakeProof Of WorkCryptocurrencyMarkets

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