Determinism and Adaptability: A Comparison of the Two Inflation Mechanisms of Bitcoin and Ethereum

1. When “scarcity” becomes a belief

In the semantic map of the financial world, “inflation” is often seen as the enemy.

In the world of cryptocurrencies, “inflation” is a philosophy that has been redefined.

Bitcoin and Ethereum — the two most influential public chains to date — are both addressing the same proposition: 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 also a creed: scarcity is trust.

In contrast, there is another belief in Ethereum: an elastic supply without a cap. It refuses to be defined by a fixed formula, yet maintains a dynamic balance through a complex system of burning and rewards.

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 evolved “monetary ecology”.

2. The Time Machine of Bitcoin

The inflation mechanism of Bitcoin is like a sculpture driven by time.

Its shape has been etched into the code since 2009. Every 210,000 blocks, the reward halves, until the block reward eventually reaches zero.

From the initial 50 BTC, to 25, 12.5, 6.25, and now 3.125. Every halving is like the tolling of a clock, prompting the whole world to re-examine this “predictable scarcity.”

The elegance of this mechanism lies in its immutability. There are no committees, no algorithmic voting, and no elastic parameters. Bitcoin's inflation rate is a step function, starting from the initial tens of percentage points and declining to less than 1% today. Following the established trajectory, it will reach zero in 2140, by which time there will be no new Bitcoins created in the world.

This design has made Bitcoin's inflation rate already lower than the annual growth 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 block rewards eventually disappear, Bitcoin miners will only rely on transaction fees to maintain operations. The sustainability of miner income and the future of network security have become the longest-standing philosophical debates in the Bitcoin academia and developer community.

The monetary policy of Bitcoin is like a precise clock: reliable, cold, and unchangeable. It refuses flexibility, but in doing so, it wins immortality.

3. Ethereum: Seeking Balance in Evolution

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

Vitalik Buterin never promised that the supply of Ethereum would be fixed. Instead, he suggested in the 2015 white paper that the currency supply should be adjusted as the network grows. This is an economically adaptive biology, rather than a dogmatic monetary theology.

In the early days, Ethereum had a very high inflation rate—more than 10% issued annually. This was a network still in its growth stage, requiring incentives for 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;
• Constantinople in 2019, reduced to 2 ETH;
• Each adjustment is reducing inflation, allowing Ethereum to gradually transition from a “high growth phase” to a “steady state phase.”

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

It introduces a “fee burning” mechanism: every transaction incurs a base fee, and this portion of the fee will be directly destroyed—forever gone.

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, and the entire system enters a deflationary state.

At that moment, ETH was first referred to as “Ultrasound Money”—a tribute to the spirit of Bitcoin as “Sound Money,” 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). Block rewards plummeted from 13,000 coins daily to about 1,700 coins, a reduction of nearly 90%. This is equivalent to three Bitcoin-style halvings in terms of monetary tightening.

The merged Ethereum has seen its inflation rate drop to about 0.5%. If the network is active, and the ETH burning rate exceeds the issuance rate, negative inflation will occur— a unique “active deflation” in the crypto world.

The scarcity of Bitcoin comes from rules; the scarcity of Ethereum comes from behavior.

Four, Two Philosophies of Inflation: Deterministic and Adaptive

Bitcoin and Ethereum are both pursuing the same goal: to preserve the value of currency over time.

But they are taking completely different paths.

Bitcoin has written inflation into its schedule. Once its monetary policy is released, there is no room for modification. The halving event is like a religious ceremony that reminds the world every four years: scarcity continues to accumulate.

Ethereum has taken an experimental path. It refuses to impose a cap, yet actively reduces its issuance multiple times in practice, introduces burning, and decreases rewards. Its monetary policy is like open-source code, allowing for adjustment, optimization, and evolution.

The differences between these two philosophies reflect two understandings of “trust.”

Bitcoin allows people to trust the immutability of code;

Ethereum allows people to 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 is like the currency of the gold standard era, scarce, predictable, and austere;

Ethereum is more like an organism that is a hybrid of a central bank and algorithms, having learned to “breathe”—contracting supply during trading booms and releasing incentives during calm periods.

V. After Inflation: The Narrative Power of Currency

Today, as Bitcoin enters its fourth halving cycle and Ethereum seeks a balance between burning and issuance, the debate over “cryptocurrency inflation” has transcended economics. It has turned into a narrative struggle.

The narrative of Bitcoin is one of eternal scarcity. Its believers firmly believe that in the currency wars of the 21st century, only Bitcoin with a fixed supply can counteract the dilution of national credit. It is “digital gold” and also an escape from monetary sovereignty.

The narrative of Ethereum is one of adaptation and evolution. It believes that monetary policy can be upgraded like a network protocol. It ties the money supply to the demand for block space, integrating the flow of value with the supply of tokens.

This difference is shaping two distinctly different economic ecosystems:

• Bitcoin becomes a store of value, the “digital vault”;
• Ethereum has become 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 stability; Ethereum chose growth.

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

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

Bitcoin, with an almost sacred coldness, has proven that a currency with a fixed supply can operate for fifteen years in a stateless world without deviating from its course;

Ethereum demonstrates with an experimental spirit: currency does not have to be static; it can also find a coherent balance between algorithms and behavior.

When future people look back at this history, they may not only see two tokens, but rather two design philosophies regarding “trust.”

One is to use certainty to combat uncertainty;

Another way is to forge a new order in uncertainty.

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