Source: blockchain.news
According to data from Ethereum tracker Ultrasound Money, the latest Ethereum upgrade (the merger) is reducing the supply of Ether (ETH) in the proof-of-stake consensus.
However, the second largest cryptocurrency may still have a long way to go before turning deflationary.
Some of the key promises that the update promised to make for the Ethereum blockchain were to improve efficiency and make the network more scalable, reduce the supply of Ether, thus making it a deflationary asset, and others.
Metrics from the Ultrasound Money web portal show that the supply of Ether under the Proof-of-Stake network has increased by more than 5,990 since the Merge event so far. But this number is lower than it might have been under the proof-of-work consensus mechanism, the data shows.
In addition to that, the number is much lower than the supply of Bitcoin, whose network produces 6.25 BTC coins every ten minutes with the proof-of-work mechanism.
According to the Ultrasound Money platform, Ether can become deflationary when the coins in the block subsidy are lower than those being burned. Furthermore, ETH will become a deflationary asset when the number of people transacting the currency grows more than those who stake it.
Apart from that, the cryptocurrency will be deflationary when the transaction fee reaches 15 Gwei or 0.000000015ETH.
But for now, these conditions still do not exist. According to Ultrasound Money, Ethereum transaction fees are 11 Gwei, with staking generating more tokens than burning.
What is being seen on the ground so far?
On September 15, Ethereum switched from using energy-intensive technology (the proof-of-work network) to a more sustainable system (the proof-of-stake consensus) in a major upgrade called “the merger.” The update is reported to have reduced network power consumption by more than 99.95%.
PoS is an alternative that consumes less energy. Instead of consuming electricity, which fuels computing power, users who want to be part of the verification process risk their personal cryptocurrency in a process popularly known as staking.
These users, called validators, are randomly selected to verify new information to be added to a block. They receive cryptocurrencies if they confirm accurate information. If they act dishonestly, they may lose their participation.
While it is impossible to know exactly how the merger will play out in the long term, for now, investors are rushing to stake their funds. This confirms the previous narrative that Ether still has a long way to go to go deflationary.
Over the past week, Ether staked on the Ethereum blockchain has reached nearly $195 million. Under the new system, participants contribute to the security of Ethereum by locking up their ETH in exchange for a modest annual return (APR).
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