The Ethereum merge…it’s coming next month.
This is a day that will live forever in crypto history, as this transition to proof of stake
has been in the works for years.
This merge has even earned itself a nickname, the triple halving.
Meaning, ETH is going to reduce its supply issuance like 3 Bitcoin halvings.
Extreme supply shock or ETH’s worst decision.
Find out in about 10 minutes, because it’s time for Chico Crypto!!
September 15th is the tentative date for the merge to go live, of which even Vitalik Buterin
confirmed.
Vitalik stated the terminal difficulty for when this happens and also said “This means
the ethereum PoW network now has a (roughly) fixed number of hashes left to mine.bordel.wtf
predicts the merge will happen around Sep 15, though the exact date depends on hashrate.
If we got to bordel.wtf…we can see it’s still expected to happen September 15th.
So yup, the countdown is on….the Merge is around the corner, only 29 days to go and
Ethereum turns off proof of work…..Forever.
Let’s now talk about why it’s been termed the triple halving.
Everyone knows Bitcoin goes through a halving event about every 4 years.
It’s hard coded into the blockchain and it cuts the rewards the miners get in half
like clockwork every 4 years.
This means the inflation rate of Bitcoin…reduces substantially each time.
BTC inflation began high, at about 30 percent before the 1st halving.
By the end of that cycle and right before the next halving it reduced to about 9 percent.
When the 2nd halving commenced, BTC dropped to about 4 percent.
After the 3rd halving it dropped to about 2 percent, and as of today, the inflation
rate of Bitcoin is about 1.8 percent.
So why do they call the Ethereum merge the triple halving?
Well adding in Ethereum inflation to the chart, we can see Ethereum’s inflation has also
been decreasing…but even with the steady decrease, the inflation rate is still higher
than Bitcoin’s.
As of today it’s over 4 percent.
But that’s going to change drastically September 15th.
Ethereum issuance on September 15th will drop from 13,000 new ETH a day to just 1,300 new
ETH a day.
That means the inflation rate will plummet from above 4 percent down to just .04 percent.
If Ethereum was to follow Bitcoin’s reduction schedule, using halvings….to get down to
that level of inflation…it would take 3 halving events.
Ethereum is having 3 halving events.
Which takes Bitcoin 12 years….all happen at once.
Now, the next Bitcoin halving is scheduled to take place sometime in April of 2024.
That means the inflation rate of Bitcoin will drop somewhere near 1 percent.
It’s going to take another 4 years, or sometime in 2028, for its inflation to drop near where
Ethereum’s 0.4 percent is.
But by that time, Ethereum’s inflation rate could be even lower than .4, I’m talking
deflationary, a negative inflation number.
Why is this??
Well zooming into Ethereum inflation over the past year, we can see there are times
when Ethereum inflation drastically drops…by over .4 percent, actually near a 1 percent
drop.
This is because of a certain upgrade Ethereum implemented back in August of last year.
EIP-1559, the Ethereum burn upgrade.
What is this upgrade?
In short, It burns a portion of every transaction fee, called the basefee & takes it out from
the total supply to never return.
In times of high network use, the burn upgrade goes into overdrive, increasing the base fee
that is burned…which of course pushes down inflation.
So it’s highly possible this burn feature, with the merge pushing inflation to just .4
percent…that there will be many times that Ethereum is deflationary after September 15th,
meaning the inflation rate is below 0 percent.
That is something Bitcoin won’t achieve until the last Bitcoin is mined.
Which is projected to happen in the year 2140.
But there is one more thing, which is going to supply shock the entire Ethereum system…like
never before, or to never happen again.
As we know, Ethereum is moving to proof of stake…miners are going away, and proof of
stake validators are taking their place.
You’ve been able to stake Ethereum for almost 2 years now, the proof of stake beacon chain
shipped in December of 2020.
Although, if you did stake…those Ethereum have been locked.
They cannot be withdrawn yet…
Checking out stats on Ethereum’s proof of stake chain, we can see there’s over 415
thousand validators with nearly 13.3 million Ether locked.
That’s basically 25 billion in Ether…
Now when the merge happens…this will still be locked.
The upgrade for withdrawals is estimated to happen 6 to 12 months after the merge.
So that means 25 billion in ETH, plus anything that is added won’t be available on the
open markets for up to a year, and possibly beyond as Ethereum is known to delay upgrades.
But when it does happen, won’t there be a sudden supply increase!?
How is that good for Ethereum?
Well there is a queue to withdraw…If every single validator wanted to unlock their staking
right away, it’s estimated the queue would take about 1.5 years to complete…
So my friends-reduced inflation far below Bitcoin’s, a burning mechanism possibly
bringing inflation below 0 percent, and 25 billion plus in locked Ether….it all sounds
GGGGGREEEAAAT right!?
Well we do have to look into the risks involved with this as it’s possible it doesn’t
go all to plan.
Yes Ethereum has been testing this with its testnets,…and it’s all worked out with
every single one of them…but this is a big change…it’s like changing your car from
gas to electric, while it’s speeding 70 miles per hour down the freeway.
The chain has to continue running, without stopping…and it is possible that the mainnet
merge doesn’t happen smoothly, and the blockchain grinds to a halt.
That would mean a chain restart would have to happen before the merge.
That’s not good, and would put a damper on Ethereum’s reputation.
People would call Ethereum Solana….it would be bad, the price would suffer but not the
end of the world…
It’s also possible another delay comes as they notice a bug which would cause the network
to grind to halt…this would be better than the blockchain stopping, but again the price
of Ether would suffer because of it.
The biggest risk of all, is the forking risk.
The ethereum chain gets split into two, as the miners continue mining on the continued
proof of work chain.
Ethereum has already forked once, with Ethereum classic, but it’s very possible a new fork
happens on September 15th, the ETH-W fork.
I covered this a week and a half ago…Chandler Guo, prominent Chinese miner is the one behind
a possible fork.
He tweeted “I fork ethereum once, I will fork it again!”
He has since been moving full steam ahead on a fork, last week he tweeted “ETHW testnet
coming soon” Just days after this he tweeted the github for ETHW and said “The ETHW Core
development organization has open sourced the first version of the code today.
The main functions are as follows: 1.
Perfectly defused the difficulty bomb 2.
The miner's reward for recovering the EIP1559 burning will be distributed to the miners
of each mining pool 3.
Adjusted the difficulty of starting ethw
And already, exchanges have started listing ETH-W ious meaning the future token has a
price.
As of yesterday, it was sitting just above 63 dollars, and switching to markets we can
see Poloniex, Gate.io, mexc, phemex, digifinex and coins have all listed the iou for the
token.
So it definitely seems like this is going to go down & that could spell problems for
Ethereum.
For one…it could split the community.
The ethereum mining community is pretty large and they are being thrown to the curb.
Community splits are never good.
But this could also cause big problems for the Ethereum community as a whole who decide
to start playing around with the ETH-W chain as they get duplicate everything.
Ethereum, NFTs, and erc20s.
Chain debrief put out a great article titled “What Are Replay Attacks?
Why You Need To Know Them Before The Ethereum Merge”..the article states “With the merge,
two chains will now be present, PoW and PoS.
This will create two versions of your NFTs and assets.Wouldn’t It make sense to sell
it on the old chain to get them all out the Ethereum?
This is the primary issue that leaves you subjected to a replay attack.This is basically
where a transaction that happens on one chain can be exploited to happen on another.
For example, you decide to list your BAYC NFT on the PoW chain, hoping to cash out and
still have a copy to hold and show it off.
The issue however is that an individual could “replay” the transaction on Ethereum 2.0.
Selling your BAYC on the new chain, leaving you with nothing.
Now an Adam McBride on twitter tweeted a thread about this replay attack possibility and one
guy replied “You’re just making me more nervous now Adam” of which he replied “Join
the club.
Supposedly devs are already building bots to try and take advantage of this possibility.”
If you don’t interact with ETHW then your assets are safe…but if you do…you better
take precautions.
After the merge, send all your assets to a new Ethereum POS wallet.
And then do the same on the POW chain, send all assets to a new address…a different
address than the POS chain- then continue using each one ONLY on that respective chain.
You break the link & the possibility of a relay attack is gone.
So my friends…the Eth merge should go down in history as a success, as it puts Ether
in a position, which makes it look more attractive than Bitcoin.
But there are risks…and those risks could affect normal investors if they decide to
see what the forked chain is all about.
Cheers I’ll see you next time!