It’s been 217 days since the merger when Ethereum (ETH) transitioned from the energy-intensive Proof-of-Work (PoW) consensus mechanism to the eco-friendly Proof-of-Stake (PoS) consensus mechanism.
Since then, the cryptocurrency has experienced a significant drop in its native token, burning through 104,939.20 ETH, which equates to over $200 million in current market value.
This decrease corresponds to a 0.146% decrease in the annual supply of ETH, according to statistical data from the Ethereum monitoring site, ultrasound.money.
Had Ethereum not undergone the Merge and stuck and continued to rely on miners to protect the network, the Ether supply would have grown by over 2.5 million coins, which translates to a staggering 4,900! Millions of dollars at current market value. Furthermore, the supply of native Ethereum coins would have increased by 3.53% each year.
London Update Triggered Ethereum Shift Towards Deflation
While The Merge did trigger the reduction in the ETH supply by a significant amount, it was not directly responsible for the burning of ETH. The tokenomic aspect of burning ETH was implemented via the Ethereum Improvement Proposal 1559 (EIP-1559), which was implemented via the London Update in August 2021.
The London update split transaction fees into two parts: a base cost and a priority fee. The base fee is burned and can no longer be used on the network, while the priority fee serves as payment for the miners. However, with the transition to PoS, miners no longer exist for the network.
EIP-1559, which was implemented via the London update, was designed to reduce inflation on the Ethereum network and put deflationary pressure on the ETH supply. Despite this, the total supply of ETH has increased by 3.21 million coins since the update went live.
In light of the increased ETH burn since the Shapella update, which allowed staked ETH to be withdrawn, the trend of declining supply is expected to continue in the coming months.
The Post-Merge Ethereum: $4.9B in Potential Supply Growth Avoided Through Proof-of-Stake Transition Appeared First on CryptoSlate.
