The Ethereum community has been hard at work over the past few years, laying the foundation for its shift away from its current proof-of-work (PoW) algorithm which has formed the backbone of the blockchain’s operation up until today.
Ethereum’s switch to its proof-of-stake- (PoS-) powered Ethereum 2.0 chain is edging closer to reality, with recent updates to its blockchain resulting in the issuance of Ether (ETH) becoming deflationary.
Recent upgrades have resulted in deflationary issuance of ETH, where the burning of a portion of transaction fees has surpassed the issuance of new ETH through mining. Some in the industry didn’t expect this to happen before the network upgrades to Ethereum 2 (Eth2). It’s an important factor that is envisaged to drive the value of the underlying cryptocurrency upward in the months and years to come.
The influence of this earlier-than-expected shift to the deflationary issuance of ETH cannot be understated in terms of its effects on the value of ETH. Furthermore, industry participants believe this deflation is to increase once the network fully transitions to Eth2, down more than 10 times from its current issuance of 2 ETH per block mined.
Recent developments
Late last year, the foundation was laid for the transition to Eth2 as the proof-of-stake Beacon Chain went live, allowing users to stake Ethereum in order to become validators. This would essentially replace the role of current miners that use physical hardware to validate transactions, add new blocks and generally maintain the network.
As of November 17, 2021, there are over 260,000 validators that have staked the minimum 32 ETH needed to become a validator on the chain. At the time of writing, the current amount of Ethereum tokens staked sits at 8,327,638 ETH — valued at around $34.1 billion.
The value of Ethereum has been on a steady uptrend in 2021 and has hit new highs driven by a variety of factors this year, including the exploding popularity of the decentralized finance (DeFi) space of which a large portion operates on the Ethereum blockchain.
The most anticipated upgrade of 2021 was the London hard fork that introduced a handful of Ethereum Improvement Proposals (EIPs). One particular proposal, EIP-1559, was a point of contention due to the change of fee structures earned by miners and paid by users.
A sore point was the built-in ETH burn mechanism that destroys a portion of Ether used to pay a transaction fee. This irked Ethereum miners before the upgrade, given that transaction fees are a driving factor that incentivizes miners to maintain the network.
Related: Bitcoin Taproot upgrade improves the network as BTC price impact may be limited
An important upside of the London hard fork, which took place in July 2021, was the deflationary action of the ETH burn mechanism. Every transaction now sees a percentage of ETH destroyed, gradually leading to more ETH being removed from the ecosystem that should increase the scarcity and value of ETH as an…
Read More: cointelegraph.com