Deflationary coin
The Merge brings an important characteristic to the Ethereum blockchain by creating deflationary pressure. Previously, as a Proof of Work blockchain, the annual inflation rate of ETH was 3.15%. However, within just one year after The Merge:
- 679,000 ETH was minted
- 981,000 ETH was burned
- Total: -302,000 ETH
This means that the supply of ETH has decreased by 0.25% annually. Currently, approximately 489 million USD worth of ETH has been burned.
Additionally, it is crucial to highlight that the past year has experienced a downtrend period, resulting in less vibrant activities on the blockchain. It is predicted that during the upcoming bull-run phase, the soaring gas fees will further accelerate the coin burn rate.
The Era of Liquid Staking
Proof-of-Stake finally introduces the much-awaited staking feature to ETH. Based on data from DefiLlama, the current protocols have already seen a staggering $19.5 billion worth of ETH staked, with Lido Finance dominating the market with a 72% share.
Liquid Staking has emerged as one of the largest segments in DeFi, placing tokens from these protocols in the spotlight for investors. Prominent examples include LDO, FRAX, and RPL.
However, the significant concentration of market share in Lido has sparked intense debates within the community, raising concerns about centralization and potential risks. This is a topic that the Ethereum community aims to address in the near future.
Energy Consumption
The Ethereum network has made significant strides in reducing its energy consumption, with data from The Cambridge Centre for Alternative Finance showing a reduction of up to 99.9% after The Merge. This remarkable improvement addresses concerns about ETH’s energy usage and environmental impact, positioning it as a more environmentally friendly cryptocurrency.
During an interview with DL News, Marius van der Wijden, a core developer of Ethereum, highlighted the shift in conversations surrounding crypto and Ethereum. He noted that prior to The Merge, discussions would quickly focus on worries about energy consumption and emissions. However, after The Merge, the implementation of better blockchain metrics has eliminated the environmental impact previously associated with Ethereum.
Nick Ashley, the Marketing Director of Rocket Pool, also emphasized the positive impact of Ethereum’s transformation. He explained that the fact that Ethereum is no longer seen as an environmental pollution machine has significantly improved its reputation and the perception of public blockchains in general. As a result, traditional financial organizations can now consider adding ETH to their investment portfolios while still adhering to environmental policies.
The SEC
Staking has become a contentious issue in the United States, drawing the attention of the Securities and Exchange Commission (SEC), which has targeted several crypto exchanges for offering services that allow users to earn network rewards.
In February, Kraken reached a settlement with the SEC, resulting in a $30 million fine. The allegations centered around Kraken’s staking-as-a-service program, which was deemed an unregistered securities offering. Similar claims were made against Coinbase and Binance in lawsuits related to their respective staking products.
Interestingly, while the SEC has taken legal action against Binance and Coinbase, accusing them of offering unregistered securities, observers have questioned why the regulator has not targeted tokens that use proof of work as potentially illicitly issued assets.
Complicating matters further, U.S. regulators are in disagreement about how to classify Ethereum. This has led to a perceived turf war between two major financial watchdogs: the SEC and the Commodity Futures Trading Commission (CFTC).
In March, CFTC Chairman Rostin Behnam stated that Ethereum should be considered a commodity. However, in a previous statement, SEC Chair Gary Gensler implied that “everything but Bitcoin” could be considered a security. When asked about Ethereum in April, Gensler avoided providing a clear answer.
Supply and Direction
The Merge has had a significant impact on Ethereum, including a decrease in the overall supply of the token. This change is due to the shift in how new Ethereum is issued and how often it is removed from circulation (referred to as burning). According to sound.money, this has resulted in a 0.25% decrease in the total amount of Ethereum in circulation.
In hindsight, the Merge may seem like a small event compared to the tumultuous moments and corporate controversies that shaped the crypto markets in 2022. However, when looking towards the future, O’Riordan compared it to a guiding light that illuminates Ethereum’s overall direction.
He expressed, “There’s a renewed belief in confidence that Ethereum can actually pull off these major technical upgrades and do ambitious things,” he said. “While Ethereum can be slower than we’d all like it to be, it’s ultimately moving forward and staying true to its values at the same time.”
Developers have been diligently working on plans for one of Ethereum’s upcoming significant upgrades called “Dencun,” as shared by core developer Mario Havel in an interview with Decrypt in July. This upgrade includes the introduction of a feature called proto-danksharding, which is expected to scale Ethereum to process over 100,000 transactions per second once fully implemented.
Various other features are also being developed, such as account abstraction, which aims to make managing a crypto wallet as user-friendly as managing an email account. Additionally, Buterin recently discussed a feature called stateless clients, which would make it feasible to run Ethereum nodes on smartphones in the future.