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Ethereum Triple Halving and its process!
📌What is Ethereum Triple Halving?
The Ethereum Triple Halving is a unique process that involves a significant reduction in the block reward for Ethereum (ETH) from three (3) ETH to one (1) ETH. This occurs approximately every four to six years and aims to reduce the Ethereum network’s inflation rate. The goal is to potentially increase the value of ETH over time by limiting the new supply of ETH entering the market.
The term “Triple Halving” is derived from the concept of Bitcoin Halving, where the mining rewards for Bitcoin are halved every four years. However, in the case of Ethereum, the reduction in block rewards is implemented on a larger scale, further emphasizing its significance. This is achieved by lowering the block reward miners receive for successfully verifying a transaction block on the Ethereum blockchain.
Similar to Bitcoin Halving, Ethereum miners receive newly minted tokens as a reward for their mining efforts. Ethereum miners also receive transaction fees associated with each mined block, providing an additional incentive for their participation in the network.
📌How does Ethereum Triple Halving work?
Just like how Bitcoin Having occur every four years and creates deflationary pressure, the Ethereum Triple Halving will also introduce deflationary pressure on Ethereum, but from three different directions. These include a significant reduction in the issuance of ETH, the burning of tokens, and a substantial amount of staked ETH that will remain locked up for a significant portion of the next 12 months.
✅Part 1: Reduced Issuance
With the implementation of the Proof-of-Stake (PoS) system, the rewards for validating new blocks of Ethereum are set to experience a substantial reduction. The annual issuance of ETH is projected to decrease significantly, from 4.3% to 0.4%, after the successful completion of the Merge, as estimated by former blockchain engineer Montana Wong. This translates to a drastic drop in daily issuance, from approximately 15,000 ETH to a much lower figure of around 1,500 ETH.
Furthermore, the increased efficiency of the Ethereum network resulting from the Merge is expected to decrease the daily sell pressure on ETH that comes from miners. With miners requiring less capital to secure the energy needed for their operations, their daily incentives to flood the market with ETH are anticipated to decrease by 10x.
✅Part 2: Burning
The EIP-1559 update, which was implemented during the London Hard Fork last year, introduced a mechanism to the Ethereum network that could potentially contribute to deflation. This mechanism involves burning a portion of each transaction fee under specific conditions. The ongoing burning resulting from this update will further add to the overall deflationary pressure on the Ethereum network.
✅Part 3: Staked Ethereum Withdrawals
The PoS consensus mechanism that is employed after the Ethereum Merge relies on individuals staking their ETH through validators, who are responsible for securing the next block on the chain. Even before the Merge, individuals have had the opportunity to participate in staking and are rewarded for doing so. It is predicted that staking rewards will increase by 100% or more after the Merge.
The increasing amount of locked-up ETH due to staking represents another deflationary pressure that will likely impact the value of the cryptocurrency throughout the upcoming year.
The ETH Triple Halving is an intriguing consequence of the Ethereum Merge, a series of upgrades that have shifted the Ethereum network from the Proof-of-Work (PoW) model to the Proof-of-Stake (PoS) model, resulting in a significant reduction in the issuance of new Ethereum tokens. While these changes may introduce some short-term volatility in ETH prices, they hold the potential to increase the long-term value of the coin.
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