With the Ethereum Merge just around the corner, the crypto community has expectations for the Ethereum ecosystem post-Merge. Entities within the space are already making preparations for the eventual launch of the upgrade. In light of this, an ex-blockchain engineer has highlighted a phenomenon proponents should expect.
Software updates dictate ETH’s halving process
Taking to Twitter, ex-blockchain engineer and co-founder of Sprise, Montana Wong, discussed the “Triple Halvening” concept. According to Wong, the idea replicates the original algorithmic Bitcoin halving phenomenon but with a more efficient approach.
With the original Bitcoin halving, there is a periodic reduction of the BTC tokens miners get every few years. This helps to minimize the issuance of tokens which mitigates inflationary pressures. Furthermore, miners become more reluctant to sell their rewards. With less supply of BTC in the markets, the price of the asset sees an increase.
The current Ethereum halvening method under PoW is different from what goes on with BTC. Rather than use an algorithmic process, software updates are responsible for dictating the halvening process. The community would have already collectively agreed on the process.
The development team has successfully deployed three updates since 2015, which dictate the amount of ETH issued to miners. From 2015 to 2017, 5 ETH issued; from 2017 to 2019, 3 ETH; and from 2019 till present, 2 ETH.
The Triple Halvening phenomenon will drastically reduce ETH supply
The current update issues tokens that increase Ethereum’s supply by 4.3% annually. The high issuance of tokens incentivises the mining process to attract more miners.
This is where the recently introduced “Triple Halvening” phenomenon comes into play. When Ethereum switches to PoS, miners become obsolete and are replaced by validators. Validators consume less energy, and tokens issued to validators are way less. Consequently, ETH supply will be increased by just 0.4% post-Merge instead of the current 4.3%.
This also leads to a reduction in sell pressure by up to 10x. With less supply of ETH comes a price increase. Secondly, the current Ethereum software update, EIP-1559, actively burns a portion of transaction fees. This also leads to a decrease in ETH supply.
Lastly, Wong discussed the lockup period imposed on staked ETH for validation. There are currently 14.04M staked ETH, making up about 11% of the total ETH supply. This keeps this portion locked up. However, stakers cannot withdraw all of their ETH at once, as there is a systemic process.
Wong noted that these three techniques make up the “Triple Halvening” phenomenon post-Merge. This will drastically reduce ETH’s supply. The phenomenon is incredibly bullish as it will likely increase the asset’s price.
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