The Ethereum merger is arguably the most anticipated event for the entire cryptocurrency community in 2022. Ethereum's transition from proof of work to proof of equity is not only a technological update, but also a consensus ideological shift. As the merger approaches, CT and various research reports are increasingly discussing the process and subsequent impact of the Ethereum merger.

While Bitcoin's issuance rate is known to halve every 4 years, Ethereum's issuance rate will decrease by about 90% when it "merges," which is what the community is talking about as a "triple halve" -- a nod to Bitcoin's halving cycle. When the three halves happen at the same time, it means that Ethereum will make the 12-year journey of the Bitcoin network in one go.

How does it happen? Under the current proof-of-work (PoW) model, Ethereum issues approximately 13,500 ETH per day, representing approximately 4.3% of the total ETH supply per year. Because the PoS issue model is determined based on the number of ETH actively pledged on the network, the PoS also does not need to issue a large amount of money to pay for security. On current forecasts, when the "merger" takes place, the issuance rate will fall to between 0.3 and 0.4 per cent. (For comparison, Bitcoin won't match Ethereum in circulation until 2028.)

The release rate and supply curve for Ethereum

This is not the first time Ethereum has set ETH monetary policy by adding deflation.

A year earlier, on August 5, 2021, Ethereum launched EIP-1559, which changed the first-price auction fee mechanism to a new basic fee model with an additional miner tip. In short, rather than paying miners all of the transaction fees, most of them should be destroyed. This is not a simple upgrade of Ethereum transaction fee management, but a means of monetary policy to achieve deflation.

Therefore, after the "merger", when the "triple halving" brings the reduced issue rate, combined with the BASEFEE destruction mechanism of EIP-1559, Ethereum will move towards sustainable deflation, which means that there will be fewer ETH circulating in the market, which objectively contributes to the bullish price of $ETH. In fact, the expectation of ETH deflation is an important logic behind the rally in Ethereum's market value in Q1.

Security

From the security point of view, PoS network will increase the attack cost, and has the characteristics of easier to recover from the attack and anti-censorship. We already know that mining machines are divided into two types: GPU and ASIC. In order to improve the mining efficiency, ASIC is specially used to calculate a series of formulas to make the cost higher. Since Gpus are cheap to rent, the cost of attacking the network is to rent enough computing power to outperform existing miners, which Vitalik calculates costs about $0.26 for a six-hour attack.

The cost of using ASIC miners will be higher, and the expected life of ASIC itself is two years, considering wear and tear and iteration. If a chain is attacked by 51%, the community will probably change the PoW algorithm in response, and the ASIC miner will lose value. According to Vitalik's calculations, the cost of a 6-hour attack is about $486.75.

While the cost of PoS is almost 100% of the cost of capital - the pledged ETH, assuming a ~15% return rate is enough to attract people to pledge, the perpetrator attacks for 6 hours, and the total attack cost is about $2,189. And in the long run, if people get used to lower rates of return, the cost of an attack could rise to $10,000. So the attack cost of PoS network is 5-20 times that of PoW.

Resistance to aggressive

In terms of the ability to recover from attacks, GPU-based mining is basically immune to attacks and difficult to recover. Since GPU-based attacks are inherently cheap, once the attacker raises the cost of the attack, honest miners will quit because it is unprofitable.

In an ASIC-based system, the community has the means to deal with the first wave of attacks, but subsequent attacks become easier. The community can hard fork to switch to PoW's algorithm after the first attack, which means that the ASIC miner becomes worthless, which is a blow to both the community and the attacker, but if the attacker can withstand the ASIC becoming worthless and keep attacking, What happens next is the same as the GPU attack described above.

Then in the case of PoS, the forfeiture mechanism will automatically destroy the mortgage of a large percentage of attackers in the face of 51% attacks. In addition, for more difficult to detect attacks, the community can coordinate a "soft fork by a few" to destroy the attacker's funds in large numbers, without the need for a "hard fork to remove currency."

Energy saving

We all know that the PoW network block is a power competition - if you have more power, you can win the block prize. This competition puts higher and higher demands on mining machines and power. In PoS, block proposers are selected "at random", eliminating the arms race altogether. As a result, PoS nodes save nearly 99.95% of energy consumption compared with PoW, which is a strong response to the long-standing environmental controversy.

Without a doubt, the Ethereum merger is a landmark event in the crypto world. Will the Ethereum merger go through as planned, and where will the miners go from here? Will a hard fork succeed, or will it bring a chaotic state to the current Ethereum ecosystem? Will ETH be considered a security after the merger, and what impact will OFAC regulation have on the decentralization of Ethereum? Is the current Ethereum really ready to turn POS around?