Why I moved 25% of My Bitcoin Stash Into Ethereum Part 2- Inflation and Coin Issuance

in #crypto5 months ago

With the halving coming up, its well known within the cryptocurrency space that the amount of issuance and coin inflation yearly is one of the most important aspects of a coin. One of the most important things about bitcoin and other types of crypto is that there is either a hard cap on the supply or simply that the amount produced yearly is lower than traditional fiat. The idea is by just holding the currency, should demand stay the same, the prices will rise. This is one of the biggest reasons why I invested in bitcoin to begin with and one of the reasons I still hold it today.

For the longest time I looked at ethereum and never wanted to hold ether because the inflation rate was way too high for my liking. In periods of growth and fomo prices might rise because demand outweighs the float of coins on the actual market, but over time, as more and more coins move to the market, prices are driven back down. The value of coins with inflation rates in the upper single digits have a very hard time increasing in price. There are many other reasons a coin could fall in value, but I am a strong believer that without having a low issuance, a coin will never become a store of value.

This brings me to what ethereum is now and what it will become once 2.0 launches. In the few years alone, block rewards for ethereum have more than halved. While initially ethereum started with a block size of 5, which is substantial when you realize there are blocks between every 10-20 seconds. A change was made to lower the amount to three and ultimately last year, down to 2 ether per block. The issuance rate at the moment is around 4% yearly inflation which is still not the greatest, but it is lower than before. However ethereum is moving to a POS chain ultimately, which may take a few years for the full transition however, once it does the inflation rate will drop to anywhere from 0-2% (its a sliding scale based on how many people stake.) In all likeliness we are looking at around the .5 to 1% mark.

This would make ethereum's coin issuance rate lower than bitcoin and almost all other cryptocurrencies on the market. However the crown jewel that many in ethereum are looking forward to is the institution of improvement proposal 1559. Essentially EIP 1559 will burn the base fee when you make a transaction on the ethereum chain, removing coins from circulation forever. Depending on how many transactions are taking place on the chain. There is a chance that the issuance actually becomes net negative. Not only would coins not be added to the chain, but they would actually be removed over time. This would give a massive boost to the price if demand stays the same for the chain.

It is worth noting that much of the speculation on my end is that the team behind eth 2.0 is able to deliver and do so in a timely fashion. Also for the period that eth 2.0 phase 0 (when staking officially launches, albeit on a separate parallel chain) inflation will go up for a small period of time. However those coins are not sellable or able to connect with the 1.0 chain until the two chains merge. The bet im taking right now is that the lowered issuance of the main chain and the removal of coins to the eth 2.0 chain will create a long term price boost.