The Ethereum Merge and ETH Triple Halving are the hottest topics in the crypto community. Let’s have a look at the most remarkable Ethereum upgrade.
As we all know, Ethereum is one of the most popular platforms used to build, deploy, and use Decentralized Applications (DApps). Ethereum is powered by blockchain technology, and Ether (ETH) is its native cryptocurrency.
To date, 2970 projects have been built on Ethereum, with over 50 million smart contracts. There are more than 71 million crypto wallets with ETH balances. In addition, $11.6 trillion worth of value was moved through the Ethereum network in 2021, providing the creators with $3.5 billion in earnings.
Ethereum was first introduced by its founder, Vitalik Buterin, in 2014. He published an Ethereum whitepaper, an informational document highlighting the features of this technology. Apart from that, the whitepaper is also used as a reference to its users to represent Ethereum’s vision and latest developments.
Buterin, along with Joe Lubin, launched the Ethereum platform in 2015. The Initial Coin Offering (ICO) of Ethereum was $0.31 per coin. In comparison, ETH is trading at around $2,000 at the time of writing. Also, Ethereum is the second largest cryptocurrency after Bitcoin by market value.
How Does the ETH Blockchain Work?
The Ethereum blockchain is similar to the Bitcoin blockchain in many ways. But the main difference is that Bitcoin is considered a “first generation blockchain” with limited applications outside its transactions. Meanwhile, Ethereum, under “second generation blockchain,” provides its developers with various applications to experiment with and execute.
The blockchain technology associated with Ethereum distributes an identical copy of the blockchain throughout the network. The entire system is validated using a consensus mechanism that is unchangeable. Currently, Ethereum uses a proof-of-work (PoW) protocol, which is also called Ethereum mining.
The network participants, known as miners, run software to prove the validation of encrypted numbers following a transaction. The miner who succeeds in proving the validity of the encrypted number gets rewarded with Ether.
What is the Ethereum Merge?
The Ethereum Merge is the most discussed and debated topic in the crypto space. To put it simply, ETH or Ethereum Merge is the ongoing transformation of Ethereum’s consensus mechanism from the current proof-of-work to proof-of-stake. This transformation is to tackle the issues faced by Ethereum associated with scalability, energy consumption, and efficiency.
You must be curious about the date of this historical event, right? You don’t need to wait much longer, as the Merge is scheduled to take place on September 15, 2022. This upcoming schedule provides great satisfaction for those waiting for the past few years.
Let’s understand more about the Ethereum Merge with the help of the major components associated with the Merge event.
#1. Beacon Chain
The Beacon Chain is a parallelly developed network chain to operate alongside the Ethereum mainnet. This chain started functioning in 2020. The proof-of-work mechanism is tested on the Beacon Chain. The testing phase is very crucial for Ethereum before the Merge. More validators were involved in improving Ethereum’s proof-of-stake consensus mechanism during the testing period.
The Beacon Chain single-handedly cannot run Ethereum’s smart contracts. So, the Beacon Chain is used to establish the functionality of the proof-of-stake mechanism.
#2. Ethereum Merge
The Beacon Chain we discussed above must merge with the Ethereum mainnet to complete the Ethereum Merge.
The entire Ethereum network is transformed into its proof-of-stake mechanism during this process. Highly comprehensive testing is being conducted in advance to eliminate all errors.
#3. Shard Chains
Finally, shard chains are implemented to confirm the improvement of Ethereum’s scalability. Shard chains are the extra chains used to circulate the network’s transactional load. Apart from that, these chains also permit more data across the network.
Initially, shard chains were meant to be executed before the Ethereum Merge. In contrast, the Ethereum users decided to focus on the Merge event. The execution of shard chains completes the whole event and is expected to happen around 2023.
What Exactly Is a Crypto Halving?
A halving is a deflationary event associated with the blockchain. In this event, the rewards provided to the validators get slashed by half. The Bitcoin halving is the most popular one in the crypto space.
For example, let’s take the case of Bitcoin. A Bitcoin halving takes place once every 4 years. This halving event works according to the program till the last Bitcoin gets mined around 2040. The next Bitcoin halving is scheduled around March 2024.
Bitcoin halving is an actively discussed topic, but other cryptocurrencies such as Litecoin, Bitcoin SV, and Bitcoin Cash also undergo halving. In contrast, the schedules of these cryptocurrencies differ from Bitcoin.
So, while keeping the crypto halving in mind, let’s look at the triple halving.
What is Triple Halving?
The ETH distribution under the proof-of-work protocol differs slightly from the Bitcoin halving. The algorithm of Ethereum doesn’t reduce the ETH rewarded to the miners. The process is executed using software updates approved by the Ethereum community.
The Ethereum community members named the event “The Triple Halving.” This ETH issuance will take place once the “ETH Merge” happens. As per the current data, an average of 6,500 new ETH blocks are mined daily. The Merge thus increases the miners’ rewards.
The three major parts involved with ETH triple halving are:
#1. Significant Drop in ETH Distribution
Ethereum issues around 13,500 ETH per day, with an annual issuance of approximately 4.3% of ETH’s total supply. With the proof-of-stake (PoS) issuance, the annual issuance is predicted to drop between 0.3% to 0.4%.
The annual issuance drop also decreases the sell anxiety by the ETH miners. Eventually, the decrease in selling pressure also helps to increase the price of ETH. The phase of the Ethereum economy gradually shifts from the ongoing “mine and dump” to the “stake and re-stake” economy.
#2. ETH burn with EIP-1559
EIP-1559 is a major software update used to enhance Ethereum’s fee system. EIP stands for Ethereum Improvement Proposal or London Hard Fork Update. EIP-1599 was implemented into the Ethereum system as a mechanism to introduce base fee burning.
Before Ethereum’s EIP-1599 implementation, many other cryptocurrencies like Polygon added this update to their system. Earlier, the user needed to pay a base fee that gets transferred to the miners. But using EIP-1599, the base fee decreases in the ETH circulating supply and increases its value.
In brief, EIP-1599 enhances the Ethereum user experience. Along with the users, the miners’ revenue has also surged. Apart from that, the characteristics of the EIP-1599 system reduce the chance of network attacks.
#3. Staking Ethereum
Ethereum staking is the act of depositing ETH and getting rewarded (current APR ~4.1%). Beacon Chain introduces the upcoming proof-of-stake. Apart from being rewarded, ETH stakers can enjoy the benefits of better security. Take a quick look at crypto staking for a better understanding.
As the number of ETH stakers increases, the Ethereum network gets stronger and less feasible for attacks. If someone needs to attack the network, they need to hold most of the miners, which eliminates the possibility of any attacks.
Compared to proof-of-work, proof-of-stake doesn’t require complex system requirements. This advantage allows users to participate in proof-of-stake with a basic computer or smartphone. In addition to that, staking saves energy consumption, making Ethereum more environmentally friendly.
Users can also use different staking options according to their convenience. The available Ethereum staking options are:
Solo home staking
Staking as a service
You need to deposit 32 ETHs to utilize “Staking as a service” and “Solo home staking.” Not comfortable with staking 32 ETHs? Then you can use “Pooled staking” and “Centralized exchanges” for lower ETH stakings.
Staking involves risks, and you should select your staking options diligently.
How Does Triple Halving Impact the Scarcity of ETH?
With the implementation of proof-of-stake, the selling pressure is expected to drop by nearly 30%. The proof-of-stake mechanism encourages the miners to sell ETH once the reward is received. On the other hand, proof-of-stake and triple halving encourage miners to use their ETH rewards for staking activities.
The triple halving, which is nearly equivalent to three Bitcoin halvings, reduces the ETH inflation rate from 4.3% to 0.43%. Apart from that, the daily block reward also gets reduced to one-tenth.
In summary, ETH triple halving results in:
High network stability.
More secure and stable network.
Increased scarcity for ETH.
Less energy consumption.
Undoubtedly, the Ethereum Merge is the biggest upgrade in the history of the crypto space. The Ethereum community is highly optimistic about the outcome of this Merge.
After the important Merge, Ethereum becomes more scalable, safe, and consumes less energy. But as people expect, this Merge will not reduce the gas fees. Apart from that, the Merge also doesn’t improve Ethereum’s current transaction speed.
If you are an ETH holder, you don’t need to perform any actions during or after the Merge. As the upgrade is based on the protocol, there will be no direct impact on the holders or users. All you need to do is sit back, relax and witness this historic event.