The surge in gas fees on the Ethereum network was a highlight throughout the crypto journey last year. It was undeniably a turning point for many. Yet this has also underscored a growth in the user base, while also giving the ecosystem space to grow, thanks to the rise of several promising new Layer 1 blockchain networks like Solana and Avalanche.
Regardless of that, Ethereum already has a plan in place to transform into a deflationary network, aimed at solving a lot of its problems. This was done through the introduction of the Beacon chain last year to enable Ether staking, as well as the adoption of EIP-1559 which ushered in an etch mechanism into the system.
But is it too late for Ethereum to face new-age blockchains or does its monetary policy differ from those adopted by competing L1s?
Ethereum’s monetary policy has been designed to “allow it to be sustainable while providing value to ETH holders,” network promoter Anthony Sassano noted in a recent podcast. This would be done by minimizing the amount of value wasted on the network, reducing the costs of miners, which Sassano says are currently overpaid.
The ETH emission rate is also expected to drop once the transition to ETH 2.0 is complete, along with an increase in the amount of combustion. The combination of these could result in a deflationary effect on the total amount of the network, ensuring that holders and investors get better returns on their investments, according to Sassano, who added,
“Even with constant perpetual issuance without a hard cap, you still have a net deflationary ether and you still have a secure network because validators are not dependent on fees.”
This would contrast with Bitcoin miners whose block reward declines after each halving, and who struggle to mine new blocks due to the low rate of transactions on the BTC network compared to Ethereum, Sassano said.
“The only thing you can do on the bitcoin network is to make BTC transactions, there is not a lot of demand to do it … While on Ethereum layer one you have a million reasons to do transactions on the network and this is reflected in the amount of fee income. “
Validators aren’t the only ones benefiting from the switch from Ethereum to PoS, as biters themselves are expected to experience higher returns on their ETH. It’s also bullish for the network according to DeFi trader Cyrus Younessi. In the same podcast, he noted,
“When an asset suddenly starts earning another 20%, it definitely triggers a pseudo-carry just where people will borrow or invest in other fixed assets and inject it into ETH to earn the return.”
The Kintsugi public test network was spear by Ethereum last week, and it’s one of the last to be released ahead of the network’s full transition. It is supposed to replicate the ecosystem after the merger, allowing users to test its many DeFi tools and other technical aspects.