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Bitcoin Halvening Narrative Picks Up
Bitcoins are created each time a miner discovers a new block as a reward for helping validate transactions and secure the network. The number of bitcoins generated per block decreases by 50% approximately every 4 years. This is colloquially referred to as “halving” and is written directly into the BTC code. This transparent, unalterable, algorithmic, hard-capped monetary policy stands in stark contrast with the traditional fiat currencies of today which are inflationary and regularly manipulated behind closed doors without consent from its citizens.
Because of this, the amount of bitcoins that will ever exist is slightly less than 21 million and therefore will ultimately act as a disinflationary currency. Currently, 6.25 BTC are created every ~10 minutes equating to roughly 1.8.% inflation. This makes BTC one of the scarcest things on Earth, rivaling gold production. ~91% of the total supply has already been mined since 2009 meaning the current circulating supply of bitcoin is ~19.4 million.
The deflationary aspect of BTC, some argue, incentivizes users to hoard BTC rather than spend it, undercutting its purpose as a currency. This has, thus far, largely proven true as the “digital gold” and “HODL” narratives have proliferated. With users HODLing, each new halvening programmatically creates added scaricty to the BTC supply, which many believe creates a “supply shock” that jumpstarts the next bull cycle. Looking at the chart below, it is had to argue with them.
Currently, there are ~19.4 million BTC in circulation with the next halving due in ~April 2024. Different studies speculate that between 3-4 million BTC has already been cut from circulation forever due to accidental loss, destruction, and the death of individuals who alone control the keys to their BTC. With BTCs becoming increasingly scarce, will the 2024 halving repeat prior cycles? Only time will tell.
Ethereum Staking Up, ETH on CEXs Down
Encouragingly, the amount of ETH deposited in the beacon chain surpassed the quantity withdrawn since the Shanghai upgrade on April 12, currently standing at a net of 2.22M ETH. The recent data highlights the increasing confidence users have in Ethereum's potential as a productive asset and underscores their commitment to treating ETH as a long-term, yield-bearing, and a deflationary investment.
The amount of ETH held on centralized exchanges reached its lowest point in seven years, accounting for only 14% of the total circulating supply. This significant decrease can be traced back to November when users swiftly withdrew their assets from crypto exchanges due to the collapse of FTX. The trend regained momentum in March, triggered by several banking failures resulting in a sense of distrust in the financial markets. As such, non-custodial staking solutions such as Lido and Rocketpool, benefited from the assets exodus from custodial exchanges.
Ethereum’s Next Step?
The cryptocurrency landscape continues to evolve in the face of unprecedented market turbulence. As investors attempt to chart a course through these choppy waters, it is essential to identify emerging trends and anticipate potential market influencers.
Delving into the internal dynamics of the cryptocurrency sector, one cannot overlook the significance of the imminent Ethereum's EIP-4844 implementation. Also referred to as "proto-danksharding," this update is integral to Ethereum's scalability solutions. Scheduled for a late Q3 or early Q4 launch in 2023 as a constituent of the Dencun upgrade, EIP-4844 holds the potential to revolutionize Ethereum usage by substantially reducing costs associated with Layer 2 (L2) transactions ("The Ethereum Improvement Proposals," n.d.).
Under the proposed update, transaction costs for Ethereum layer-2 could plummet by at least 90%, with some projections even indicating a potential cost reduction by up to 99%. This shift is expected to draw a significantly larger user base to Ethereum, primarily by facilitating access through roll-ups.
The Mechanism: Data Blobs and the Reduction of L2 Costs
EIP-4844's groundbreaking approach to reducing costs hinges on a novel introduction - "data blobs". These innovative components temporarily house data associated with L2 transactions until they are validated by the Layer 1 (L1) network.
This strategy offers a marked departure from the existing "CALLDATA" mechanism, wherein data remains stored indefinitely on the mainnet. The high costs currently associated with L2 transactions are primarily driven by L1 data storage, which contributes to over 90% of the expenses. With the advent of data blobs under EIP-4844, L2 transaction fees are expected to nosedive by a minimum of 90% ("Layer 2 Scaling," n.d.).
Despite its inherently technical nature, the implementation of EIP-4844 will yield a straightforward outcome for users. They will experience a significant reduction in costs associated with L2 transactions, making Ethereum a more accessible and cost-effective platform for a broader demographic.