The difference between the number of Ethereum tokens issued and destroyed over the past seven days turned negative for the first time, thanks to Ether outperforming Bitcoin despite both cryptocurrencies hitting record prices.
The week-long spike prompted crypto enthusiasts to tweet that Ether is deflationary, and now as a possible hedge against inflation. Its competitor, Bitcoin, has long been identified as such because it has a supply limit of 21 million coins, which won't be reached until around 2140. Ether has no explicit limit.
Ether benefits from a process called burning, where coins are taken out of circulation. It was launched last August, amid a network software update known as "the London Hard Fork". This upgrade was designed to give Ethereum the ability to process more transactions, with a goal of lowering high user fees.
After the update, every transaction on the Ethereum network burns a small amount of Ether. This means that periods of intense transactional activity, which can be accompanied by price surges for altcoins running on the Ethereum blockchain, can often lead to days when more coins are destroyed than minted.
Acheson explained that the Ethereum developers designed the upgrade to make Ethereum fees more affordable rather than deflationary.
As such, high activity in Ethereum-based DeFi protocols like Uniswap has led to an increase in transaction activity, but it could decline if prices rise too high.
Acheson also said blockchains are self-correcting, so the Ethereum network is gaining more attention due to its deflationary factors. And because of this, transaction activity will increase, which will lead to higher transaction fees before stopping.
