Bitcoin vs. Ethereum: Exploring Two Inflation Mechanisms

I. When "Scarcity" Becomes a Belief

On the semantic map of the financial world, "inflation" is often seen as the enemy.

In the crypto world, however, "inflation" is a philosophy that has been redefined.

Bitcoin and Ethereum—these two most influential public chains to date—are both answering the same question: How should currency be created, distributed, suppressed, and destroyed?

The 21 million Bitcoin cap set by Satoshi Nakamoto in 2009 has become one of the most famous numbers in human digital history. It is a symbol and a creed: Scarcity equals trust.

In contrast, Ethereum embodies another belief: an elastic supply without a cap. It refuses to be defined by a fixed formula, yet maintains a dynamic balance through complex burning and reward mechanisms.

Two monetary policies, one static and one dynamic, resemble two narrative paths of civilization—one is the classical "gold standard," and the other is the organically evolving "currency ecology."

II. Bitcoin's Time Machine

Bitcoin's inflation mechanism is like a sculpture driven by time.

Its shape was etched into the code back in 2009. Every 210,000 blocks, the reward is halved, until the block reward ultimately reaches zero.

From the initial 50 BTC to 25, 12.5, 6.25, and now 3.125. Each halving is like the tolling of a clock, prompting the world to reassess this "predictable scarcity."

The elegance of this mechanism lies in its immutability. There are no committees, no algorithmic votes, and no elastic parameters. Bitcoin's inflation rate is a staircase line, dropping from initial percentages in the tens to now less than 1%. According to its established trajectory, it will reach zero in 2140, at which point no new Bitcoins will be born.

This design has already made Bitcoin's inflation rate lower than the annual production rate of gold. It is an almost perfect anti-inflation model, a monetary creed that replaces central banks with algorithms.

However, this certainty comes at a cost.

When the block reward eventually disappears, Bitcoin miners will rely solely on transaction fees to sustain operations. The sustainability of miner income and the future of network security have become the longest philosophical debates in the Bitcoin academic and developer communities.

Bitcoin's monetary policy is like a precision clock: reliable, cold, and unchangeable. It refuses flexibility, yet in doing so, it earns immortality.

III. Ethereum: Seeking Balance in Evolution

If Bitcoin is a clock written by the gods, then Ethereum is more like a plant.

Vitalik Buterin never promised that Ethereum's supply would be fixed. Instead, he hinted in the 2015 white paper that the currency supply should adjust with network growth. This is a form of economically adaptive biology, rather than a dogmatic monetary theology.

In its early days, Ethereum's inflation rate was extremely high—over 10% annually. This was a network still in its growth phase, needing to incentivize miners to maintain computing power and security. Each subsequent hard fork was like a policy experiment:

The Byzantine upgrade in 2017 reduced the block reward from 5 ETH to 3 ETH;

The Constantinople upgrade in 2019 further reduced it to 2 ETH;

Each adjustment lowered inflation, gradually transitioning Ethereum from a "high growth phase" to a "steady state."

Then, the London upgrade (EIP-1559) in 2021 fundamentally changed the logic of this curve.

It introduced a "fee burning" mechanism: every transaction must pay a base fee, which is directly destroyed—vanishing forever.

Since then, Ethereum began to self-regulate between issuance and burning. When the network is busy and gas prices are high, the amount of ETH burned can even exceed the amount newly issued, leading the entire system into a deflationary state.

At that moment, ETH was first referred to as "Ultrasound Money"—a tribute to Bitcoin's "Sound Money" spirit, and also a provocation.

The "Merge" in September 2022 was a historic milestone. Ethereum abandoned proof of work and fully transitioned to proof of stake (PoS). The block reward plummeted from 13,000 per day to about 1,700, reducing issuance by nearly 90%. This was equivalent to three Bitcoin-style halvings in monetary tightening.

Post-Merge, Ethereum's inflation rate dropped to about 0.5%. If the network is active and the ETH burning rate exceeds the issuance rate, negative inflation occurs—a unique form of "active deflation" in the crypto world.

Bitcoin's scarcity comes from rules; Ethereum's scarcity comes from behavior.

IV. Two Philosophies of Inflation: Certainty and Adaptability

Both Bitcoin and Ethereum pursue the same goal: to preserve the value of currency over time.

But they take entirely different paths.

Bitcoin writes inflation into a timetable. Once its monetary policy is released, there is no room for modification. Halving events are like religious rituals, reminding the world every four years: Scarcity continues to accumulate.

Ethereum, on the other hand, has taken an experimental path. It refuses a cap but has actively reduced issuance, introduced burning, and decreased rewards multiple times in practice. Its monetary policy resembles open-source code, allowing for tuning, optimization, and evolution.

The differences in these two philosophies reflect two understandings of "trust."

Bitcoin instills trust in the immutability of code;

Ethereum instills trust in the evolvability of consensus.

The former is a hard inflation model—a predetermined reduction curve;

The latter is a flexible model—a system that automatically adjusts based on network vitality and economic feedback.

If Bitcoin resembles the currency of the gold standard era—scarce, predictable, and cold;

Then Ethereum is more like an organism that blends central banking with algorithms, learning to "breathe"—contracting supply during trading booms and releasing incentives during calm periods.

V. After Inflation: The Narrative Power of Currency

Now, as Bitcoin enters its fourth halving cycle and Ethereum seeks balance between burning and issuance, the debate over "cryptocurrency inflation" has transcended economics. It has become a narrative struggle.

Bitcoin's narrative is eternal scarcity. Its followers firmly believe that in the currency wars of the 21st century, only Bitcoin with a fixed cap can counteract the dilution of state credit. It is "digital gold" and also an escape from monetary sovereignty.

Ethereum's narrative, however, is about adaptation and evolution. It believes that monetary policy can be upgraded like network protocols. It binds currency supply to block space demand, integrating value flow with token supply.

This difference is shaping two entirely different economic ecologies:

Bitcoin becomes a store of value, a "digital vault";

Ethereum becomes an economic operating system, carrying the liquidity of finance and applications.

In this sense, inflation is no longer just a data indicator, but a choice of civilization.

Bitcoin chose permanence; Ethereum chose growth.

VI. Epilogue: The Future of Inflation and the Limits of Trust

Currently, global monetary policy is still experiencing dramatic fluctuations—the shadow of inflation lingers in the fiat world. In the crypto world, inflation mechanisms are being rewritten by algorithms, protocols, and human consensus.

Bitcoin, with an almost sacred coldness, proves that a currency with a fixed supply can operate for fifteen years in a non-sovereign world without deviating from its course;

Ethereum, on the other hand, demonstrates with an experimental spirit that currency need not be static, but can find a self-consistent balance between algorithms and behavior.

When future generations look back on this history, they may not only see two tokens but two design philosophies of "trust."

One uses certainty to combat uncertainty;

The other forges a new order within uncertainty.

In the story of digital currency, inflation has never disappeared; it has simply been redefined.