The Ethereum Merge upgrades, which marked the transition from a proof of work (PoW) to a proof of stake (PoS) paradigm, are a significant turning point in the development of Ethereum. The aforementioned transition has led to the emergence of the phrase ‘Ethereum Triple Halving,’ which has piqued the interest of traders, investors, and industry professionals who are anxious to comprehend its possible ramifications on ETH transaction fees and prices.
Understanding Ethereum Triple Halving
The Ethereum Triple Halving refers to a procedure wherein the block incentive for ETH is decreased from three (3) ETH to one (1) ETH per block. This decrease in frequency takes place around every four to six years and functions to mitigate inflationary pressures on the Ethereum network, ultimately contributing to the augmentation of the ETH’s long-term value.
The moniker “Triple Halving” is derived from the Bitcoin halving phenomenon, which entails a halving of mining rewards for Bitcoin every four years. Although conceptually similar, the Triple Halving implemented on Ethereum transpires on a significantly grander magnitude. This is accomplished through the reduction of rewards that miners obtain for each successful validation of a transaction block. When new currencies are minted, Ethereum miners are awarded tokens, similar to how Bitcoin is halved. In addition, transaction fees are allocated to miners in recognition of each block that is mined effectively on Ethereum.
Briefly, the event is referred to as the “Ethereum Triple Halving” because of the following:
At the moment, the default fee percentage stands at 12.5%, which signifies that 12.5% of the petrol fees are incinerated. However, there are intentions to increase this to 25% by means of the forthcoming Ethereum Shanghai Upgrade, which is scheduled for March 2023.
Additionally, an imminent enhancement known as Surge is anticipated to be implemented. As a result, the basic fee percentage will once more increase to 50%.
These two enhancements will collectively reduce the rate of new Ether issuance by approximately 90%, which is equivalent to three consecutive halvings. This contributes to the term “triple halving” being applied.
Ethereum Migration From POW to POS and the Merge
At its inception, Ethereum was presented as a traditional cryptocurrency. However, as the organization grew, its founders became aware of specific challenges associated with its scalability. As a result, they adopted a calculated course of action to amend their network in an effort to resolve these concerns and guarantee the continuous functionality of the blockchain as a platform for development.
Ethereum initiated the formal transition referred to as the Ethereum Merge in 2020. As part of the Proof of Work (PoW) mechanism, participants utilize computational resources to resolve intricate mathematical conundrums in return for incentives. Proof of Stake (PoS), on the other hand, validates transactions through the random selection of validators who have staked their cryptocurrency.
The controversy surrounding the PoW approach stems from its high cost and detrimental environmental effects. In contrast, Proof of Stake (PoS) is more readily implementable and requires minimal administration resources, which increases its scalability in terms of validating new transactions and encouraging greater participation among participants on the Ethereum blockchain.
To test Ethereum staking, Ethereum introduced the Beacon Chain in December 2020. As a result of the endeavor’s triumph, the choice was made to incorporate the Beacon Chain into the main chain, an achievement referred to as ‘The Merge.’ ‘The Merge’, which was executed in September 2022, converted the primary Ethereum chain to a PoS-based consensus mechanism.
The subsequent graph illustrates the evolution of the ETH supply since the Proof-of-Stake transition to the blockchain.
How Does Ethereum Triple Halving Work?
Reduction in Daily Coin Issuance:
Powering a Proof-of-Work (PoW) node incurs significant electricity and facility costs, which contribute to its high cost.
Under PoW, miners depend on rewards to offset these expenses, which leads to increased issuance.
Validators incur fewer expenses with PoS, which reduces the demand for high issuance.
An approximate 0.5% reduction in annual token supply growth is the result of a decline in validator rewards from 4%.
The average daily ETH issuance decreased substantially from 13,000 ETH to 1,700 ETH.
Ethereum Staking:
The proof-of-work algorithm prioritises miners who possess high-performance hardware.
Prioritising assets staked on the network over computational capacity is the focus of PoS.
Block validation is more probable for validators who have a greater number of staked assets.
A portion of the assets are withheld from circulation during the staking period.
The Merge facilitates the integration of the Beacon Chain into the Ethereum mainnet.
In addition to the minimum 32 ETH that validators are required to stake, the success of their endeavours is gauged by the assets staked via their portal.
A considerable fraction of the Ether supply is obstructed as a result of extensive stake.
Ethereum’s Coin Burning Mechanism:
As a component of the August 2019 London hard fork, EIP-1559 consumes a fraction of ETH transaction fees.
Burning more than two million Ether coins over the past three years has diminished circulation.
Burned ETH is transferred to an unaccessible wallet, thereby eliminating it permanently from circulation.
EIP-1559 modifies the fee structure to introduce a priority charge and a base fee, thereby deflationizing Ether.
Ethereum has been dubbed “Ultrasound Money” due to this deflationary characteristic, which stands in opposition to Bitcoin’s fixed supply.
How Does Triple Halving Affect the Price of ETH
The transition to Proof-of-Stake on Ethereum has resulted in a reduction in the amount of ETH issued to miners for the purpose of transaction validation. Validators generate income through staking, which ties up ETH and reduces its supply.
ETH Burning (EIP-1559 Upgrade): EIP-1559, an upgrade, implemented a fee structure whereby a fraction of transaction fees are burned, resulting in a perpetual reduction of ETH’s supply.
Staked ETH Reduces Circulation: By staking ETH, users reduce the quantity of available for trading by locking it up for a period of time.
These elements reduce the supply of ETH, which generally results in price increases. ETH’s price is, nevertheless, subject to market sentiment, regulations, and demand. Thus, while the triple halving is anticipated to have a long-term positive impact on ETH, additional factors will also be at play.
Conclusion
Ethereum’s triple halving substantially diminished the supply of ETH, thereby enhancing its appeal as a long-term investment. This minor deflation shifted subsequent to the Proof-of-Stake transition that took place during the Ethereum Merge. Although the ETH Triple Halving is a noteworthy outcome of these modifications, it is critical to conduct comprehensive independent research prior to investing in the token.
