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A big event in the crypto world is about to happen. After months of delays and revised timelines, **the Ethereum network will finally undergo one of the most important upgrades in the history of the crypto market.**

Basically, **the network will change the way of managing transactions, becoming more energy efficient, paving the way to become more scalable in the future and for a deflationary transition of Ether.**

# What is The Merge?

To understand the Ethereum moment, we need to understand The Merge (or Fusion).

**Scheduled to take place between the 10th and 20th of September**, The Merge is the **merger of the PoW-based Ethereum Mainnet (Mainnet) with the PoS-based Beacon Chain**. To recap:

- **Proof of Work (PoW) **– The network depends on miners and energy expenditure for transactions to take place;
    ​
- **Proof of Stake (PoS)** – Transactions depend on the ETH staking of the owners.

The merger will take place when the last block of transactions is produced on the old PoW network, with the next block being produced on the Beacon Chain. When the merger of the PoW network with the PoS network takes place, the consensus rule will be the Proof of Stake.

**The Beacon Chain has been operational since December 2020** and, instead of miners, it is protected by validators, using PoS. **Staking requires users to lock 32 ETH and run one node**, equating to **around $50,000 in current values**.

The Ethereum community has been using specific networks to perform tests, find bugs and gather enough validator nodes to run the network.

Fusion tests have already been carried out on the Ropsten, Sepolia and Goerli test networks. Virtually everything went right.

**The Merge should take place in two phases:** 
- Bellatrix on the 6th (which prepares the network for the official merger)
- Paris between the 13th and 25th.

The change tends to make the grid more energy efficient, as energy expenditure is expected to decrease by 99.95%.

# How the merger changes the supply of ETH

We can divide the supply of ETH into two primary forces: emission and flaring.

Issuance is the process of creating new ETHs.

**Burning occurs when existing ETH is destroyed and taken out of circulation**.

**The balance between these two factors determines the resulting inflation/deflation rate of ETH**.

**Current ETH issuance**

- **Mining rewards (PoW): 15,000 ETH/day**
- **Staking rewards (PoS): 1,600 ETH/day**

**After the merger, only 1,600 ETH will be issued per day**, which will reduce total new daily ETH issuance by 90%.

Currently, **around 1,200 ETH are burned daily**, due to the “burn” mechanism of the transaction base fees. Added to this, the trend of increasing amount of ETH staking will also contribute to the scarcity of the token.

So, if all goes according to plan, Merge could pave the way for shortages for ETH tokens.

There is currently a total of 14 million ETH staking, equivalent to $22 billion.

However, there are a number of services that allow people to pool their ether and collectively run a node, with each participant receiving the equivalent of what they deposit.

The ETH staked represents approximately 280,000 active validators and is a number that apparently continues to grow and decentralize the network.

This could affect Ethereum prices in the long run because it takes a substantial part of the available supply out of the market and locks it into the Beacon Chain smart contract.

# EIP 1559

Token burning happens through the following process:

The grid burns a portion of the gas fees arising from the transactions, which varies depending on the grid's demand.

The mechanism responsible for this is called EIP-1559 (Ethereum Improvement Proposal), introduced on August 5, 2021, through the Hard Fork London.

The upgrade allowed the network to burn part of the gas fees paid by users, permanently reducing the supply of ETH and in turn contributed to the ETH becoming deflationary.

Since then, about 2.6 million ETH, or $4.04 billion, has been burned to date, according to tracking website WatchTheBurn.

Currently, more ETH is created for miners than is removed through burning, causing inflation.

However, as analyzed earlier, this tends to change after The Merge.

If it goes as planned, ETH’s inflation rate tends to be lower than that of BTC.

The current BTC inflation rate is 1.79%.

![email.webp](https://images.hive.blog/DQmcw5acfsv6wncAFXdL518QUcrLibSudgwMDwVBZ4y9uYM/email.webp)

Ethereum's current inflation rate is 2.5% per annum. After The Merge, with the emission reduction combined with the flaring mechanism, it is estimated that the asset will become deflationary at a rate of -1.5% per year.

![email.webp](https://images.hive.blog/DQmPaAs1Gk3yVLU8bQZUKxW5rEpDYefP7GFjqQiGrWPxB31/email.webp)

The total supply of ETH is currently around 120 million. Should ETH turn deflationary, as expected, this could improve ETH's case as a store of value for years to come.

![email.webp](https://images.hive.blog/DQmfWX3zxRPuNAqgqWmNVBjWSekJm6fg5wDiS5iH1hztLwd/email.webp)

There are other estimates that the net issuance of ETH varies between -0.5% to -4.5%, which will depend on network fees.

![email.webp](https://images.hive.blog/DQmNhXdiNHPcADSH5WbmWGoRRZfNh1T1Vi8MZdmMrAMqfBj/email.webp)

# Fork ETHW

The merger will upset some people, in this case ETH miners, who will have to migrate to another PoW network.

These miners can migrate to Ethereum Classic, an Ethereum hard fork created in 2016 after the DAO hack, which still uses the PoW system. However, the liquidity on this network is minuscule compared to the main network.

ETC only has about $633,000 worth of smart contracts. Meanwhile, Ethereum has $34 billion locked up, and that's where all the most valuable NFTs like the Bored Ape Yacht Club are.

Most expect users to choose to continue working with the Ethereum mainnet.

From the user's point of view, nothing will change after the merge. If you have ETH, you will not need to do anything to participate in the change. Everything will be done in the backend and you may not even notice the technical changes.

This should also cause a big change in graphics cards, which are critical to PoW. There is an expectation that a plethora of graphics processors will be dumped in the market.

A successful merger could help boost the price of ETH in the medium to long term and help to mitigate the effects of the crypto winter, which is strongly linked to the macroeconomic environment.

The team will continue to work to increase its scalability, efficiency, speed and security.

The Merge has the potential to be the initial step for Ethereum to consolidate itself as the base layer of the new generation of the internet.

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