Ethereum Price Booster - Merge Benefits Will include Crypto Deflation

While the financial markets, including the cryptocurrency sector, are recording declines because of the rising global inflation levels, the Ethereum community is very excited about the upcoming Merge. The Merge will happen in mid-September, and the Ethereum blockchain will switch from proof-of-work to proof-of-stake.

Ethereum Merge comes with immense benefits

According to Bloomberg, one of the top benefits of the Merge is deflation, which will set Ether apart from the rest of the world as it suffers from the increasing inflation levels. The deflation of Ethereum refers to when the supply of ETH declines over time, which also affects its underlying value.

Ethereum currently runs on a proof-of-work algorithm. PoW is when the blockchain issues new tokens to miners that use powerful computers to mine new coins and secure the network. The Ethereum mining process added around 4.5% of new tokens into the market annually.

However, Ethereum launched a software upgrade that introduced token burning last year. The amount burned came from the transaction fee paid by people in ETH to use the Ethereum network. The burn process lowered the total supply of ETH tokens. While the token burning process was a milestone, it is not as big as the upcoming Merge upgrade.

The Merge is expected to happen next week. The process will shift Ethereum from the energy-intensive PoW algorithm and remove miners from the network. The network will also continue with the token-burning process, making Ether a deflationary token.

The Ethereum Foundation believes that the Merge will bring down the Ether net supply inflation to zero or below. Predictions have it that the supply of Ether will peak around the time of the Merge before starting to decline.

After Ether’s supply stabilizes or declines, it could result in a gain for the token. The Merge is creating a bullish flag for Ether as during the past week, it has gained by 6.9% as the date for the Merge nears.

Ethereum deflation will not happen immediately

There is no clear timeline on when the Ethereum deflation will start. According to ConsenSys, deflation will commence during the spring of 2023. The rate at which Ether is burned depends on the network’s transaction volumes, and they have been on a decline lately amid a plunge in the total value locked (TVL).

The Ethereum blockchain could also fail to complete a successful Merge. Some bugs could be identified after the Merge, which could depress the activity on the Ethereum blockchain.

The Ethereum network developers have announced a bounty program for white hat hackers that detect potential bugs on the Ethereum network as it prepares for the Merge. This ensures that the network remains the decentralized applications (DApps) hub for the best DeFi exchanges, crypto games projects, and other projects.

While Ethereum as a deflationary token is an attractive aspect, investors should understand that the network participants can vote on changing the token’s tokenomics. However, if Ethereum switches to PoS and solves issues such as slow speeds and high transaction fees, the network adoption could grow and create another compelling case on why ETH will gain in the long term.


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