Post ETH 2.0 Upgrade, Ethereum Supply is Expected to Decrease

After the network switches from proof of work to proof of stake, the supply of Ethereum should decrease. EIP-1559 gave ETH "deflationary pressure." The asset should become simply deflationary as a result of the merger.

Ethereum Supply is Expected to Decrease Post the ETH 2.0 Upgrade

Currently, over 118 million ETH are in circulation. And, despite the fact that there is no supply cap on the cryptocurrency, don't expect that number to grow too much.

According to Ultrasound Money's simulations, the supply of ETH will decline by 2% per year after the transition to proof of stake. If current rates continue, the blockchain will begin to burn more Ethereum than it generates with each new block.

At the start of August, Ethereum developers pressed the "go" button on one of the most significant blockchain upgrades ever. EIP-1559, an Ethereum improvement proposal that increased the block size to help combat network congestion and destroyed transaction fees rather than sending them to miners, was included in the London hard fork.

The goal was to apply deflationary pressure to an asset with a circulating supply six times greater than Bitcoin's. This has largely been accomplished. According to Watch the Burn statistics, ETH issuance has decreased by 57% to date; over 1.1 million ETH have been distributed as block rewards to miners, while nearly 630,000 have been burned.

The Transition from Proof of Work to Proof of Stake

When Ethereum is transformed into Ethereum 2.0, the deflationary pressure (slowing growth) should become outright deflation (shrinking supply).

At the moment, Ethereum, like Bitcoin, relies on miners to validate and process transactions. In the not-too-distant future, proof-of-work will be replaced by proof-of-stake, when ETH holders will lock up their coins to secure the network—and receive rewards in return. While proof of stake exists on the Ethereum "beacon chain," a semi-functional chain that does not allow for withdrawals or applications, developers have yet to "merge" it with the proof-of-work chain.