When Ethereum was first launched in July 2015, all its transactions, smart contracts, and accounts were held through the Proof-of-work system. PoW adds new data and transactions to the blockchain but needs a miner to solve the complex cryptographic functions. Additionally, this requires a lot of energy and hardware.
The Ethereum community launched the Beacon Chain consensus layer to solve this problem. The layer was launched on 1st December 2020. The Beacon Chain layer went on to do its work successfully, and in September 2022, the Proof-of-work was permanently eliminated from the blockchain.
What is Ethereum Merge?
The Ethereum Mainnet used PoW for its accounts, balances, smart contracts, and blockchain state, while the Beacon Chain used Proof-of-stake. Both of these systems worked together until they were merged on 15th September 2022. Through this, the PoW is permanently replaced by PoS. Now Beacon Chain is used as the engine of block production.
How is it impacted the market?
The aim of this transition or merger was to make Ethereum deflationary. However, in the first few days after the merge, the situation was rather the opposite. At the time of the merge, on 15th September, the total circulating supply of the Eth was 120,520,222 ETH; however, within a few days, it increased to 120,534,212 ETH.
Nevertheless, after a few days, the merger started to yield results, and the total supply started falling down.
Ethereum before and after the merge
There has been a drastic change in the overall circular supply of Ethereum after the merger. At the time of reading, there have been +2,661.29 ETH changes in the total supply in the last 46 days (since the merge). The total supply is reducing by 1.15 ETH per minute thanks to burning, making 1500+ ETH burnt each day.
According to UltraSound Money calculation, Uniswap, OpenSea, and XEN are the major contributors to burning the ETH. The following chart shows, Uniswap at the top of the chart with 6,372 ETH burn in the last 30 days, followed by XEN Crypto 5,752, and OpenSea 3,788.
Although the Ethereum circular supply is declining rapidly, it does not mean that it will have a far lower circulating supply. Ethereum has to cover a lot to have a far lower circular supply. According to Ultra Sound Money calculation, by October 20, 2024, ETH will have a total supply of 199,600,000, a drop of 0.775% or 0.387% per year.
What to expect next?
There was a debate about whether the merger will change the transactional history of Ethereum. The official announcement said, “No history was lost in The Merge. As Mainnet merged with the Beacon Chain, it also merged the entire transactional history of Ethereum.”
People thought the transaction speed would be faster after the merge, but it almost remained the same. Additionally, it does not lower the gas fee, so the gas fee also remains the same.
Changing the system from proof-of-work to proof-of-stake is praised by money due to its eco-friendly and sustainability. The officials are confident it will decrease ETH energy consumption by 99.95%. As a leading cryptocurrency, the ETH move to have a green blockchain will make quite a difference in the approaches of other cryptocurrencies.
The whole world is moving to an eco-friendly and green environment, and the ETH merge has paved the way for other cryptocurrencies to adopt this. The earlier other blockchain adopts this strategy, the better it will be for them and the environment.
Additionally, with the merger, the circulating supply is reduced quite significantly, making it a deflationary asset. The merge has impacted the whole blockchain of ETH positively.