One year ago on September 15, Ethereum completed its transition to a proof-of-stake (PoS) consensus mechanism with the implementation of the Merge. This significant upgrade switched the blockchain from a proof-of-work (PoW) setting to PoS.
If Ethereum had remained a PoW blockchain, the net supply would have increased by over 3.8 million Ether, or 3%.
The PoS mechanism requires participants to hold a minimum amount of Ether to validate transactions and receive rewards. In contrast, the previous PoW setup relied on miners solving computational problems in exchange for rewards.
The transition to PoS eliminated a significant portion of miner supply from the market. Additionally, the PoS mechanism burns a portion of transaction fees, reducing the circulating supply of Ether.
This upgrade has turned Ether into a deflationary currency, making Ethereum more environmentally friendly. However, despite these changes, Ether’s market value has remained largely unchanged since the Merge, while Bitcoin has seen a 30% increase in the past year.
The upcoming Paris upgrade, though not expected to reduce gas fees, may serve as a catalyst for Ether investors. However, the reduction of gas fees is anticipated with the introduction of the Ethereum Improvement Proposal (EIP)-4844, also known as “proto-danksharding.” This upgrade aims to lower gas fees and increase transaction throughput by implementing data blobs that process data efficiently and cheaply.
The EIP-4844 is set to be launched later this year.