Ethereum’s Post-Merge Struggles: The Challenge of Proof-of-Stake

Ethereum’s Shift to Proof-of-Stake

On September 15, Ethereum completed its much-anticipated transition to a proof-of-stake (PoS) consensus model. Excitement was high, but much like the end of a good party, the aftermath wasn’t exactly what everyone hoped for.

Price Plummet: A Harsh Reality

Despite the optimistic expectations surrounding the Merge, ETH’s price took a sharp nosedive—from around $1,650 right before the event to approximately $1,350 just five days later. That’s an almost 16% drop! It appears that the crypto community was more in the mood for sobering news than celebratory cheers.

Market Pressures Affecting ETH

In addition to the excitement fading swiftly, other contributing factors played a role. A prevailing worry over potential rate hikes by the Federal Reserve crept into the market, causing tremors across top cryptocurrencies, including Bitcoin. It felt like a collective sigh of defeat.

The Inflationary Dilemma

The day after the Merge, Ethereum’s supply seemed to do a backflip, becoming positive once again. This counteracted hopes for a deflationary outcome after the transition to PoS. While ETH’s annual emissions have dropped by around 0.5%, it seems the overall supply is still gradually increasing.

Reward Changes: A Tough Adjustment

Miners, once the kings of Ethereum’s network, are now feeling the pinch. Prior to the Merge, Ethereum doled out about 13,000 ETH per day to its proof-of-work (PoW) miners, but after the switch, rewards plummeted by nearly 90%.

The Gas Fees Conundrum

Ethereum’s fee-burning mechanism, introduced back in August 2021, aimed to improve the situation by permanently eliminating a portion of transaction fees. However, a daily average gas fee of only 14.3 Gwei as of September 20, means there’s still an excess supply of ETH. It makes one wonder if the burning mechanism is on vacation.

Miners vs. Network Realities

As if the situation couldn’t get more complicated, the mass exit of miners and a selling spree of about 30,000 ETH leading up to the Merge further complicated the aftermath. Leaving behind a trail of sold tokens worth about $40.7 million, it’s clear that miners needed to act fast, perhaps believing the party was over.

Future Outlook: Risks Ahead

With ongoing macroeconomic uncertainties adding pressure on riskier digital assets, ETH’s price could face even further declines. Analysts suggest a possible fall of $750 if current trends continue. Buckle up; it might be a bumpy ride ahead!