The Merge was a highly anticipated update for the Ethereum Network that went into effect in early September of this year. Now that the hype has come and gone we're going to be diving into what effects The Merge had on the network, and how these changes work together with past and upcoming developments.
Effects On Inflation:
The Ethereum Networks yearly inflation was lowered to 0.11% after Ether issuance was cut during The Merge. With over 90% less Ether being issued the network now has around 15x less inflation than Bitcoin. Assuming Eth issuance rates don't go lower Eth will remain comfortably less inflationary than Bitcoin even after the next halving occurs. Bitcoin will still issue 80% more new coins at an inflation rate of 0.90% post halving. This doesn't include any of the effects burned Ether may have on net issuance in the long term which will likely result in periods of intense deflation for Ether during the coming bull market.
To confirm that we will likely see periods of intense deflation we can use some data from EtherScan.io & Ultrasound.Money. First we're going to check the live stats to see how much ETH is being issued yearly.
With 603,000 Ether now being issued every year that gives us a daily issuance rate of about 1,652 Eth. Now lets see how much is being burned during times of heavy network traffic on EtherScan.io.
The chart above shows us that during the last bull market there wasn't a single day where less than 1,652 Ether was burned. During the networks heaviest use it burned 70,000 Ether in a single day, that's around 42 days worth of Ether issuance burned in 24 hours.
On average throughout the bull market multiple days worth of issuance were burnt every day. This adds to the perfect storm that's forming for Ethereum over the course of the next cycle:
- Long term holders choosing to continue staking after lockup is complete
- Exchanges and holders buying up market liquidity
- Ether being locked up in Defi
- Less inflation than ever due to issuance reduction
- No more sell side pressure from miners
The combination of all of these factors point to a historical cycle with highly limited liquidity, and a titillating continuation of this experiment to create ultra sound wealth.
Effects On Energy Usage & Carbon Footprint:
The energy usage and carbon footprint of the Ethereum Network decreased by 99% each when The Merge went into effect. It was hailed by ConsenSys in a press release as the “Biggest decarbonization in the history of tech” for reducing network energy consumption from 23,000,000 Megawatt-hours per year to 2,600 Megawatt-hours per year.
This change is so massive that it's almost hard to imagine. Ethereum now uses ten thousand times less energy than Bitcoin, and one hundred thousand times less energy than the global banking system. With anti-environmentalism being a large part of the general narrative of concern that followed crypto's ascension through the last cycle, it's likely that this shift in paradigm could allow Ethereum to garner more attention during the next bull market.
For more details regarding The Merge’s effect on the electricity consumption and carbon footprint of the Ethereum Network you can consult this report by The Crypto Carbon Ratings Institute.
Effects On Security:
The security of the Ethereum network has increased by 500% now that it has transitioned to Proof of Stake. The cost to attack Ethereum has also increased with the introduction of slashing. Any validators that are unreliable, attempt to manipulate blocks, or try disrupt the chain will have their staked ETH slashed. If enough infractions occur to set them below 16 ETH then they will be removed as a validator.
Effects On Scalability:
Unfortunately The Merge had no direct effects on the scalability of the Ethereum network, but with The Merge now complete we will likely see development teams shift their focus towards scaling. The shift to Proof of Stake as the method of consensus for the Ethereum network lays the groundwork for the road to zk snarks and rollups that will allow 100,000 TPS.
Note: These effects won't be seen until The Surge update goes live, which may not be until 2023 or 2024.
The Merge had massive implications for the Ethereum Ecosystem overall and it's mind boggling that such a massive change came and went so quickly without any issues. The reduction of inflation, usage of energy, and increase in security will set Ether up for massive success in the future as well as being the foundation for our next set of upgrades.
A huge congratulations is owed to to all holders, developers, and community members. Time to continue onwards and upwards.