According to industry analysts Ethereum It currently faces inflationary pressures that could affect its market value. The ETH network has experienced a significant decrease in network activity. Notably, network fees dropped over 9% in a single week. It hit a nine-month low of $22.1 million, as reported by blockchain analytics firm IntoTheBlock.
The result of this decrease in network fees is the inflationary trend in ETH supply. This change is attributed to fewer ETH tokens being burned to verify transactions compared to the number created. Data from Ultrasound.money underlines this shift.
Layer 2 Networks Impacted Ethereum
Koinfinans.com As we have reported, one of the key drivers behind the decline in network fees is the increasing adoption of Layer 2 networks. These solutions aim to increase the scalability and efficiency of Ethereum by processing a significant portion of transactions outside the main blockchain. According to Lucas Outumuro, IntoTheBlock’s research manager, this trend is likely to continue in the near term.
The shift from deflationary to inflationary dynamics on the ETH network marks a departure from the narrative that emerged following last year’s Merge upgrade. This significant network upgrade transitioned Ethereum from a proof-of-work consensus mechanism to a proof-of-stake model.
altcoinAdding to the concerns surrounding ‘s recent performance, JPMorgan analysts released a report highlighting the overwhelming impact of the much-anticipated Shanghai upgrade. Although there were high hopes for this upgrade, it failed to improve network efficiency. Key metrics such as transaction counts, active addresses, and total value locked on the blockchain have all declined since April.