10 Things You Should Know After Ethereum Merger

An Ethereum merger is one of the most powerful catalysts in crypto history, and its arrival is rapidly approaching.

As Ethereum moves towards the end of the Proof of Work (PoW) mechanism, it is necessary to understand the 10 important characteristics of Ethereum’s merged PoS era:

1. ETH L1 fees will not decrease after the merger

The purpose of the Ethereum Merge is to deprecate Ethereum's PoW consensus mechanism and replace it with PoS. Fees are a function of block space requirements, not the consensus mechanism. For lower fees, use L2 (already online) to execute transactions.

2. There will be no structural selling pressure from ETH issuance in the 6-12 month window after the merger

Before Ethereum 2.0 staking withdrawals are enabled, users cannot withdraw staked ETH and issuance/block rewards to validators. However, fee tips (basefee is burned) and MEV can be withdrawn.

3. After the merger, the ETH inflation rate dropped from 4.3% to 0.22%

If we assume 500,000 ETH in fees per year, the combined daily ETH issuance will drop from 14,250 ETH/day to 736 ETH/day. This is a 95% reduction in issuance - which means 95% less ETH can be sold per day (after staking withdrawals are enabled)

4. ETH under PoS will have better security than ETH under PoW (the cost of attacking the chain is higher)

This topic will be debated to death - but mathematically, ETH is more expensive to attack under PoS than under PoW. Vitalik Buterin described it best in his article “Why PoS?”:

https://vitalik.ca/general/2020/11/06/pos2020.html

5. Due to EIP-1559’s fee consumption, ETH has a deflationary monetary policy in most scenarios

See the ETH issuance scenario below:

In short, even with 100 million ETH staked and 0 fees, the ETH inflation rate is only 1.51%

6. After the merger, ETH staking yield increased by 50% (conservative estimate)

The current ETH staking yield is 4.2%. After the merger, including transaction fees (fee tips) and MEV entering the validator, the staking yield will jump to more than 6%

See the staking yield scenarios below:

7. After the merger, ETH will complement BTC ’s use cases as a primary collateral and value storage

BTC has solidified its narrative as “digital gold” — which is great.

ETH will be both a "digital bond" (staking yield = risk-free rate) and the main collateral asset of DeFi.

8. After the merger, the Ethereum blockchain will be more sustainable than the Bitcoin blockchain

In addition to PoS being more energy efficient than PoW (using 99% less electricity), Ethereum is also cheaper.

@ryanberckmans explains this clearly:

https://twitter.com/ryanberckmans/status/1386505715938775044‌

9. ETH expansion is coming!

The merger replaces ETH's consensus engine with PoS to improve security. A secure L1 is conducive to the development of L2 Rollup.

Scaling by @0xPolygon, @arbitrum, @optimismPBC, @StarkWareLtd, @zksync, and others is moving full speed ahead.

10. After the merger, Ethereum’s upgrade journey will not end

Although L1 Ethereum’s technical specifications will become significantly more rigid after the merger, the technology needs to continue to develop.

Data sharding, light clients, staking withdrawals, state management, etc. - coming soon. In the words of Vitalik:

https://twitter.com/VitalikButerin/status/1466411377107558402‌

Let me repeat: the Ethereum merge is one of the most impressive engineering feats in blockchain history.

Under a full PoS system, Ethereum will have the economic structure to improve security, scale through L2, develop its DeFi and NFT platforms, and surpass Bitcoin.