Ethereum is a decentralized platform that has the potential to develop and maintain thousands of projects. Here are some factors that make Ethereum such a strong cryptocurrency:
1) Open-source, which means it’s open to anyone who wants to make an improvement or add on their own project;
2) Programmable;
3) Algorithm has been designed with the intention of becoming more efficient over time;
4) Has a faster block time than Bitcoin, which means transactions are processed faster;
5) The algorithm helps protect against mining attacks, which are becoming more common as cryptocurrencies become more popular.
Ethereum is looking strong in 2022 based on tokenomics. But how do you know whether Ethereum is the right investment for you?
A key reason Ethereum (CCC:ETH-USD) has an advantage over other tokens is that it has sustained its downward trend since the beginning of November.
Due to this fact, it’s likely that few people are interested in hearing more about why this has happened. Instead, let’s talk about the deflationary pressure being exerted on ETH, and why that’s good for the price moving forward.
To understand this pressure, it’s necessary to examine Ethereum’s supply, the London Hard Fork, and Ethereum improvement proposals. Deflationary pressure is one of the key factors behind bullishness around Ethereum.
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Supply is fundamental to any asset and its price. The more there is, the less valuable it is bound to be. With digital assets, there is no theoretical limit to supply.
However, if Ethereum wished to do so, it could simply mint as many ETHs as it chooses. However, the value of each successive ETH would be lower than it would otherwise be.
This is what makes the London Hard Fork so bullish moving forward into 2022. EIP-1559, or Ethereum Improvement Proposals, is the most important of the five.
One of the changes in EIP-1559 is that it upgrades the bid system and, most importantly for the purposes of this discussion, it removes some ETH from circulation during every transaction.
An asset’s value increases as its supply declines, so Ethereum’s supply will decrease as time goes on. That means it becomes rarer, and therefore more valuable.
Even though the overall supply hasn’t begun to shrink, the trend is clearly moving in that direction.
Toward Deflation
A clear demarcation line can be seen in the Ethereum supply chart. In early August, the curve noticeably flattens. That is no coincidence – the London Hard Fork happened on Aug. 5.
Ethereum is moving from proof of work to proof of stake as part of a greater transition.
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Ultimately, the most important point is that a portion of each ETH is being removed from circulation with every subsequent transaction.
In spite of the steep decrease in supply, the curve has already flattened. In fact, the article notes that since the implementation of EIP-1559 in early August, 1.2 million ETH have already been removed. Furthermore, the article notes that 6.28 ETH are burned every minute.
It’s important to note that EIP-1559 is a step towards deflation of Ethereum. Despite a slowing increase in supply, it hasn’t yet become deflationary.
Not Yet Deflationary
Between the start of 2021 and the implementation of EIP-1559, the supply of ETH increased by 2.73%, going from 114.08 million to 117.19 million. Since the implementation of EIP-1559, the supply of ETH has increased by 0.62%.
So, although ETH has yet to reach true deflationary status, it’s on the way.
What to Do
Ethereum may be a good buy-the-dip moment, given that it has suffered of late. The argument for ETH going deflationary makes a lot of technical sense.
The supply growth has declined to 0.62% since the implementation of EIP-1559. More investors are becoming aware of tokenomics, which is beneficial to ETH.
Back in November, ETH experienced periods when it was truly deflationary for a week. This is a significant step in elevating the value of ETH going forward.
Via this site.
Author
Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
