Hear from the industry’s best and brightest about the latest news in crypto and blockchain from Australia and around the world with Jonathon Miller, Managing Director of Kraken Australia.

Ethereum has gone fully proof-of-stake (PoS) in an incredibly smooth transition. From a technical standpoint, the Ethereum team should be commended for their efforts. Ethereum is the world’s second largest cryptocurrency, and a move as fundamental as going from proof-of-work (PoW) to PoS at this scale had never been done before.

There’s plenty of upside to their efforts. Ethereum is now 99.95% more energy efficient. The technical work that went into making the transition happen will set the stage for large scalability improvements (the next in line is called “The Surge”). It is widely reported that The Surge could happen next year.


Barely a ripple

Unlike previous Ethereum upgrades, we didn’t see a major upswing in ETH in the run-up to or aftermath of The Merge. For many ETH traders, the most significant upgrade in Ethereum’s history sailed by as a non-event. Just as intended.

So what does this all mean for ETH? What of the legions of miners and their mining rigs?

Ethereum miners, from the hobbyist mining on their gaming graphics card to the more sophisticated operator, were faced with a tough decision. If they wanted to continue mining, they could mine Ethereum Classic (the newly forked chain), which looked to become the home of Ethereum’s mining community. If this wasn’t appealing, they could mine another cryptocurrency or sell their hardware and move on.

It’s worth noting that the next two most popular PoW cryptocurrencies are bitcoin and dogecoin. They didn’t see a surge in mining activity post-Merge because they require different hardware – application-specific integrated circuit miners (ASICs) – to mine efficiently.

So Ethereum Classic got off to a roaring post-Merge mining start as one of the only games in town, though the initial spike in its hashrate has fallen significantly, down about 50% from its peak. Remember, as more miners join any one PoW cryptocurrency, it becomes less profitable to mine.

It’s likely we’ll see a lot of the hobbyist miners either sell their hardware or simply sit on the sidelines to see how the situation changes over the next few months.


The future of ETH

A particular line of thinking pre-Merge was that ETH would become deflationary shortly after it moved to PoS. The theory was that the rate of ETH burn would entirely offset and surpass the rate of newly issued ETH post-Merge. In other words, more ETH will be destroyed than created over time, making ETH deflationary. This would result in a positive value return for ETH holders post-Merge.

At the time of writing, this has not occurred. That said, there will be periods when ETH becomes deflationary in the months ahead, and Kraken Intelligence expects that over time, ETH’s net issuance will turn deflationary as Ethereum’s usage climbs.

If this happens (much like for Bitcoin) a deflationary environment would mean that each ETH will grow more valuable over time.

However, given the extreme complexity involved in calculating this – and the ever-present ability of Ethereum to issue more ETH – attempting to make a definitive statement about the future of ETH is inherently fraught with risk.

For his part, founder Vitalik Buterin has called long-run inflationary tokens a “bad idea”, so a slow transition to a deflationary environment is the likely goal.

Just remember, “Don’t trust, verify” is a central crypto mantra for a very good reason!


This article was developed in collaboration with Kraken, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.