Data tells you the deflation rate of Ethereum after the merger

Introduction: As the second largest cryptocurrency by market value, any changes in the Ethereum network will be closely watched by the market.

Ethereum’s next important upgrade, “The Merge”, is coming in September. It can be clearly seen on the special page of OKLink’s official website that there are still about 20 days left before the completion of this upgrade.

What this article wants to do today is to intuitively present through a series of data what the deflation situation of ETH will be like after the Ethereum merger and upgrade.

Ethereum's inflation/deflation is mainly affected by two factors: the issuance of Ethereum and the destruction of Ethereum. This Ethereum merger upgrade is a complete conversion from the PoW algorithm to the PoS algorithm. Ethereum mining is about to become history, so the main factor affected is the issuance of Ethereum.

In 2019, the Ethereum mainnet underwent a Constantinople upgrade. After this upgrade, the Ethereum mining reward was set at 2 ETH per block. In addition, if a miner mines an "uncle block", such a block cannot be added to the mainnet blockchain according to the longest chain principle, but a certain reward can still be obtained. According to OKLink browser data, the "uncle block" reward is about 0.09 ETH per block. Therefore, the current reward/issuance per block is about 2.09 ETH.

In December 2020, the Ethereum beacon chain was launched (the Ethereum mainnet is henceforth referred to as the "execution layer" and the beacon chain is referred to as the "consensus layer"). By staking 32 ETH in a dedicated contract on the mainnet, one can become a validator of the beacon chain. The validator of the beacon chain receives ETH rewards by validating block transactions. The rewards are calculated and distributed in each "Epoch" of the beacon chain based on the performance of the validator. The ETH rewards that the validator can receive here will be significantly lower than the mining rewards under the mainnet's proof-of-work mechanism. According to OKLink browser data, the total income of the beacon chain validator nodes has averaged 1,622 ETH in the past month, which can also be regarded as the average daily issuance of ETH on the beacon chain.

The current ETH supply of the Ethereum mainnet is 119,498,319.7 ETH.

The issuance of Ethereum mainnet is an average block time of 14 seconds, and each block rewards 2.09 ETH, so the annual issuance of Ethereum is 4,707,874.26 ETH. Based on this, the current inflation rate of Ethereum is 3.9%.

The Ethereum beacon chain issuance is calculated based on the above average benchmark of 1,622 ETH per day, with an annual issuance of 592,030 ETH, which means the annual inflation rate is approximately 0.49%.

In summary, the current annual total issuance rate of Ethereum's mainnet and beacon chain is 3.9% + 0.49% = 4.39%, of which about 88.84% is issued on the mainnet and the remaining 11.16% is issued on the beacon chain.

After the merge upgrade, the issuance of the mainnet/execution layer will return to zero, while the issuance of the beacon chain/consensus layer will continue. That is to say, nearly 90% of the issuance will disappear, and the foundation for Ethereum's deflation will be laid.

In August 2021, the Ethereum destruction mechanism was launched with the London upgrade and has continued to this day. This plan is also known as EIP-1559. It is an improvement proposal put forward by the Ethereum community to solve the congestion problem of Ethereum. Users need to pay a fixed basic fee for each transaction. If they need to speed up transaction confirmation, they can pay tips to miners. The tips belong to the miners, and the basic fees are all destroyed.

Ethereum's average daily basic fee accounted for 70% in the past year, and a total of 2,511,002.527 ETH was destroyed, accounting for 2.1% of the total issuance. Assuming that Ethereum still maintains an average annual destruction of 2.1% after the merger, the inflation rate of Ethereum will be 0.49%-2.1%=-1.61%, and Ethereum will enter a true era of deflation.

Note:

The above charts and data presented can be found through the oklink.com browser page, and the charts can provide data downloads. Some of the data in this article that are not accompanied by pictures are calculated using the downloaded data.