--- title: '#1. Why Do I Buy Ethereum? : The Possibility of Deflation' category: crypto tags: - ethereum published: true date: 2025-08-11 13:02:12 description: 'After the Merge, issuance to validators shrinks while the EIP-1559 burn is projected to exceed it. The case for buying is not a price call but which L1 has real revenue.' --- **After the Ethereum 2.0 chain merge, the Merge, Ethereum's consensus algorithm shifts from Proof-of-Work (PoW) to Proof-of-Stake (PoS). Let's look into the resulting decrease in issuance and the possibility of deflation brought about by the passage of the EIP-1559 proposal.** 🔗 [\[Ethereum Note\]#1. Why Do I Buy Ethereum? : The Possibility of Deflation](https://medium.com/@wb3vb.eth/ethereum-note-1-%EB%82%98%EB%8A%94-%EC%99%9C-%EC%9D%B4%EB%8D%94%EB%A6%AC%EC%9B%80%EC%9D%84-%EB%A7%A4%EC%88%98%ED%95%98%EB%8A%94%EA%B0%80-the-possibility-of-deflation-83ad1a7db182) ## TL;DR > *1) Ethereum's protocol revenue overwhelms other L1 chains.\ > 2) Ethereum is highly likely to become deflationary after the 2.0 Merge.\ > 3) I plan to hold a certain proportion of Bitcoin, which has a different character from Ethereum.\ > 4) Let's focus on the fundamentals and gather the evidence for our own investing.* War, plague, inflation, recession risk, and, in crypto, the narrative of stablecoin instability, the liquidation risk of crypto venture capital (VC), and the rest of it. By now no one still insists this is a bull market, and no one doubts it's a bear market. We enjoyed the relative appreciation that came with once-in-a-lifetime zero interest rates and record-breaking Quantitative Easing (QE), and now, with scheduled, record-breaking Quantitative Tightening (QT), we've stepped into territory we've never seen before. Rather than tell myself "this time will be different," I asked the more basic question, "What has history repeated, and what should I do?" and got quickly to a conclusion: this is a time for "selection and concentration." Right now my selection is "buying Ethereum," and my concentration is building objective evidence for the question "Why?" ## 1. Protocol Revenue Comparison ![](18fe06-j4tJ8hFYFqeABn5VA9cH2A.png) *(Protocol Revenue \| Source: Token Terminal)* In the chart above, over the past year, Ethereum's protocol revenue dwarfs that of every other Layer 1 (hereafter "L1") blockchain platform. Revenue in a blockchain protocol comes down to network transaction fees and the number of transactions, where "number of transactions" means the count of transactions exchanged within the network. ![](18fe06-nNvq70WKp7T11J4nxsp0eg.png) *(Ethereum transaction count vs. Ethereum price \| Source: Bitinfocharts)* That transaction count also captures a lot of intrinsic factors: the size of the ecosystem, the number of users, how much people favor the blockchain. As the chart above shows, a coin's price and the number of transactions tend to move together, so much so that you could say "the value of a blockchain is proportional to the number of transactions." ## 2. Ethereum Burn Volume Ethereum passed the EIP-1559 proposal in last year's London hard fork. The gist: of the fees users pay, about 70% is burned as the base fee, and the remaining 30% goes to validators. Because of it, roughly 2.55M worth of Ethereum has been burned as of July 21, 2022, and last September the burn volume passed the issuance volume, cutting net issuance and confirming the possibility of a deflationary token. ![](18fe06-8EmG0BDWHMsHHtjkSf3-eA.png) *(Ethereum burn volume \| Source: Watchtheburn.com)* In late June 2022, Ethereum's [Gray Glacier hard fork](https://blog.ethereum.org/2022/06/16/gray-glacier-announcement/) pushed the Difficulty Bomb back to around September 2022, which delayed the schedule of Ethereum 2.0's the Merge more than expected. Still, it raised the odds that once the Merge happens, the burn from Ethereum's fees will exceed issuance and turn it into a deflationary blockchain protocol. ## 3. Ethereum Issuance to Validators ![](18fe06-zIHmUoA2IQIfPHWZszRHGQ.png) *(Ethereum 2.0 Beacon Chain staked ETH volume \| Source: Beaconcha.in)* Right now about 13.1M ETH is locked in the ETH 2.0 staking contract, and it should grow to roughly 15M by the expected Merge point later this year (mid-September). Going by the reference site below, that puts issuance to validators at roughly 0.7M per year. And the more staking grows, the more the payout to validators falls off, linearly. ![](18fe06-Tk3tlXuJZxKZJSG1qQovHg.png) *(Ethereum 2.0 economics \| Source: Ethereum 2.0 Economics)* ## 4. Ethereum's Generated Network Fees ![](18fe06-WFSg7T6q6Zz-kFAeBnzEKQ.png) *(Ethereum total transaction fees \| Source: glassnode)* Looking at Ethereum's fees from March 2020, when the network became active, and factoring in the decline we can expect through the current bear market, they average about 160,000 ETH/month. Call that roughly 2M a year, and the base fee burn (70%) from EIP-1559 comes to around 1.4M. A validator's total revenue is the staking issuance payout (0.7M) + 30% of validator transaction revenue (0.6M) = about 1.3M, so the burn projected above (1.4M) should come out ahead of it. Since this is just a simple projection off past data, it could shift with Ethereum's future scalability and narrative. ## 5. Closing I'm not trying to argue here whether Ethereum's price rises on an Inflationary vs. Deflationary basis. The real question is whether, at least right now, any L1 blockchain protocol even has objective revenue worth discussing. That's one reason I'm looking forward to the chain merge that brings us a step closer to Ethereum 2.0. ## 6. References - [https://docs.ethhub.io/ethereum-roadmap/ethereum-2.0/eth-2.0-economics/](https://docs.ethhub.io/ethereum-roadmap/ethereum-2.0/eth-2.0-economics/) - [https://watchtheburn.com/](https://watchtheburn.com/) - [https://tokenterminal.com/terminal](https://tokenterminal.com/terminal) - [https://bitinfocharts.com/comparison/transactions-price-eth.html#3y](https://bitinfocharts.com/comparison/transactions-price-eth.html#3y) - [https://beaconcha.in/charts/staked_ether](https://beaconcha.in/charts/staked_ether)