Ethereum's (ETH) highly anticipated Merge update has already begun to be seen as a turning point for the world's second largest cryptocurrency. Among the reasons why the upcoming update is so important is the fact that the consensus mechanism of the network has been completely changed and the mining system is no longer necessary for the network to work, as well as the fact that ETH will now have the character of deflation.
According to the statement for Ethereum, the net issuance of the asset could reach -4.5% as ETH is expected to almost triple its level of deflation. According to on-chain monitoring services like WatchTheBurn, current issuance hovers around 2.5%, which is 50% less than before the EIP-1559 update. Lucas from IntoTheBlock shared the following tweet and graphic:
"$ETH will become deflationary following the merge ETH's net business is likely to range between -0.5% to -4.5% depending on network fees Here is a projection of what that would look like based on 2022 historical data"
However, the deflation level may still remain around 1% as time will be needed for the decentralized redeployment of the network after the update.
Most ETH investors and users are eagerly waiting for deflation to gain momentum on the network as the market value of ETH is expected to be positively impacted by the rapidly dwindling supply.
The short-term effects of deflation may be beneficial for some investors, but future users may not be too happy with the rise in ETH prices in the market, followed by a steep rise in transaction fees.
However, the fact that ETH will switch to the Proof of Stake mechanism will not be good for miners. These hash rates may shift to other ETH-based coins after thousands of dollars of mining devices are wasted.