For years, the primary debate in the digital asset world centered on the concept of “sound money.” The argument was that the original cryptocurrency was a superior store of value because its supply was programmatically fixed and capped, making it a predictable and scarce asset, often called “digital gold.” In this narrative, its largest competitor was often criticized as an inflationary, uncapped asset with no clear economic identity. However, a series of profound technical upgrades has completely inverted this argument, giving rise to a new and powerful economic thesis: the idea of “Ultrasound Money.” This is the concept that a digital asset’s supply should not just be capped, but that it can be actively reduced as a direct result of its own utility, potentially making it a more robust store of value than any asset that has come before it.
The Old Inflationary Model
To understand why this change is so revolutionary, one must first understand the old economic model of the network. For most of its life, the network operated on a Proof-of-Work consensus mechanism. This was an energy-intensive process where “miners” all over the world competed to solve complex puzzles, and the winner was rewarded with a large, fixed amount of new coins for securing the network.
This system, while secure, created a high and constant rate of inflation. A large number of new coins had to be minted every single day to pay for this security, and there was no hard limit on the total number of coins that could ever be created. This constant supply pressure was a major criticism from investors, who argued that an asset with an infinite, inflationary supply could never be a true store of value. The network was a rapidly expanding “computer,” but its native asset was not seen as “hard money.”
Revolution 1: The Fee Burn Mechanism
The first part of the economic transformation was a critical update that changed how transaction fees were handled. Every action on the network, from a simple transfer to a complex financial trade, requires a transaction fee, often called “gas.” Before this update, these fees were paid directly to the miners. After the update, the fee system was split in two. It now includes a small “tip” for the validator, but more importantly, a base fee that is determined by network congestion. This base fee is no longer paid to anyone; it is permanently destroyed or “burned.”
This single change had a profound effect. It meant that every time the network is used, a small amount of the native asset is removed from the total supply, forever. This created a new, disinflationary pressure that directly tied the asset’s scarcity to its own utility. The more people used the network, the more of its currency was burned. However, this burn was often not large enough to overcome the high rate of inflation from the Proof-of-Work miners.
Revolution 2: The Switch to Proof-of-Stake
The final and most important piece of the puzzle was the network’s historic transition from Proof-of-Work to Proof-of-Stake. This event, one of the largest and most complex technical upgrades in the history of the internet, eliminated the concept of energy-intensive mining entirely. Instead of paying miners for their computational power, the network now pays “stakers” a much smaller yield for locking up their own capital to secure the network.
The economic consequence was staggering: the amount of new coins being issued per day to pay for security dropped by an estimated 90%. This was a massive, one-time reduction in the asset’s inflation rate.
The “Ultrasound Money” Thesis Explained
This is where the two revolutions combine to create the “Ultrasound Money” thesis. The network’s new economic policy is simple: Net Issuance = (New Coins from Staking) – (Coins Burned from Fees).
We now have a drastically reduced issuance of new coins and a dynamic burn rate that increases with network use. During quiet periods on the network, the staking issuance may be slightly higher than the fee burn, resulting in a tiny amount of inflation. However, during periods of high network activity—such as a bull market, a popular new application launching, or high volumes of trading—the amount of coins burned from fees can become significantly larger than the new coins being issued. When this happens, the total supply of the asset actively decreases. The asset becomes deflationary.
This creates an economic model unlike any other. Its scarcity is not just fixed; it is dynamic and directly linked to its own demand. The more the asset is used as a “world computer,” the scarcer its native currency becomes. This is the foundation of the “Ultrasound Money” thesis—an asset that is not just “sound” because its supply is limited, but “ultra-sound” because its supply actively contracts in response to its own success.
This “Ultrasound Money” thesis is a direct result of two major technical upgrades to the ETH network. The fee-burning mechanism was introduced in the 2021 update known as EIP-1559, and the transition to Proof-of-Stake was the 2022 event known as “The Merge.” This economic model is now frequently contrasted with the fixed-supply, “sound money” model of Bitcoin.