Low usage stops post-merge Ethereum from becoming deflationary
The Ethereum “Merge” update, which switched the Ethereum blockchain from from Proof-of-Work (PoW) to Proof-of-Stake (PoS), has been one of the most anticipated events in crypto so far.
One of the main reasons that this update attracted so much attention was the expectation that following the Merge, Ethereum would become deflationary due to transaction fees being burned rather than sent to miners, who were previously incentivised to sell some of their earnings to cover their costs.
Under the PoS system, miners are out of business. New coins are created and rewarded to the validators staking ether.
But despite users’ high hopes, post-merge, the Ethereum blockchain is still producing more ether than it is burning due to low usage.
For ether to be deflationary, the volume of burnt coins from transactions has to exceed the amount of ether rewards validators are earning.
An estimated chart comparing these two variables has been uploaded on Twitter by De-Fi analyst korpi. According to their estimates, for Ether to be deflationary, the base transaction fee should be 15 gwei and there should be no more than 14,000,000 ether staked.
Currently there are 14,534,406 ETH staked, with 429,758 validators earning 4.1% APY.
ETH Deposited to Beacon Chain & Validators
Since the Merge, the average transaction fee has remained under 15 gwei, meaning that the Ethereum cryptocurrency continues to be inflationary, albeit at a much slower rate than before.
Since the update on September 15th, just over 3,000 new ether have been created, whereas before the Merge, approximately 13,000 ETH per day were being sent to miners, and 1,600 ETH sent as staking rewards.
Read more: EthPoW: The pre-mined Ethereum fork no one wants
Despite the continued inflation, and negative price action since the Merge, average daily transactions on the Ethereum network yesterday reached 1.157 million, a number which remains relatively high considering that the average monthly transaction rate on the Ethereum blockchain for 2021 was 1.24 million transactions per day.
The Ethereum PoS upgrade has been lauded for its environmental benefits given it uses much less energy than the PoW system.
Etherum’s energy usage with a PoS system has been reduced by more than 99% from 112 TWh per year to 0.01 TWh per year.
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