Set to take place mid-September, the upcoming Ethereum Merge will see the current Ethereum blockchain merging with the proof-of-stake beacon chain, shifting the network from mining to staking.
While both proof-of-work and proof-of-stake help keep the network secure, proof-of-stake has several added benefits. It is cheaper, it takes much less energy, and it makes it easier to participate in running the network, enabling further decentralization and heightened security.
The merge is also expected to decrease the issuance of ETH by about 90%, which will undoubtedly push the price of the coin up due to higher demand. This phenomenon is called: “The Triple Halvening.”
As explained by Sprise co-founder Montana Wong in a Twitter thread, “”Halvening” refers to a concept in the Bitcoin algorithm that automatically reduces the amount of bitcoin rewarded to miners by half, every few years.” He added that it works differently for Ether than it does for Bitcoin. Where “Bitcoin Halvening” happens once every four years, Ether’s “Triple Halvening” depends on “post-merge software updates that have been agreed upon by the community.”
The switch to a proof-of-stake consensus means a lot less energy is being spent as less sell pressure is exerted on ETH miners, leading to a 10x reduction in ETH issuance. As figures show, “annual issuance of ETH will drop from 4.3% pre-merge to an estimated 0.4% post-merge.”
Another factor leading to the “Triple Halvening” is EIP-1559, a software update to Ethereum that “burns” a portion of each transaction fee, removing it entirely from the money supply. Montana continues: “EIP-1559 already went live during the London hard fork in August 2021, so this feature will act as a compounding effect on the overall issuance decrease on the ETH supply post-merge.”
The final factor is a lock up period on ETH withdrawals which will be implemented six months to a year after the Merge, limiting the amount of ETH that can be withdrawn per day. As ETH is currently being staked for 4% APY in rewards and cannot be withdrawn, the ETH limitation is meant to stop the market from being flooded by ETH once staking is over.
The reason for this is explained in the following question: “In order to get yields from staking your ETH (post-merge), you must stake it with a validator […] So you might be wondering, won’t everyone just unstake their ETH right after the merge and dump it?”
Together, the reduction in issuance, supply and available supply will make ETH infinitely more scarce, spiking its market value, and causing the “Triple Halvening” phenomenon.
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