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Merge Aftermath: Ethereum Fees, Supply, And The Network At Large

25 Oct, 20223 min readEthereum
Merge Aftermath: Ethereum Fees, Supply, And The Network At Large

The Ethereum Merge was one of the most anticipated upgrades in the history of crypto. Once the upgrade was successfully completed, Ethereum moved from being a proof of work (PoW) blockchain since inception to being a proof of stake (PoS) blockchain. Naturally, this move had some implications for the network and its users.

A Better Ethereum

There is no doubt that the move to proof of stake made Ethereum a better blockchain than before. The first thing noticeable about the blockchain following the Merge was how little energy was now required to run the blockchain.

The Merge saw ETH’s energy consumption decline by more than 95% because it no longer required super-charged computers to solve complex equations to confirm transactions. With proof of stake, the energy and hardware requirement was no longer as high as it was before.

Then comes the ETH supply. Previously, the EIP-1559 had been implemented which had started the ETH burn. This burn took about 30% of newly issued ETH out of supply, and the Merge has helped accelerate Ethereum’s journey to become a truly deflationary token. Since issuance is very low now, in times of high network activity, the network sees more ETH burned through fees than those being issued.

Last but not least is the fees on the network. It had been saying before that the Merge would not really have much of an impact on ETH fees but fees have declined significantly on the blockchain. Gas fees are now more than 75% lower than they were earlier in the year. However, given that fees were already on a decline before the Merge due to the crypto winter, it is possible that this is just a happy coincidence for the network.

Other Implications For ETH

One thing that was unexpected following the Ethereum Merge was the fact that regulators began to change the way they looked at the digital asset. Previously, regulatory bodies such as the SEC have said that ETH was not a security but after it became a proof of stake network, there were talks of the regulatory watchdog changing its stance and trying to figure out if Ethereum could be classified as a security. If so, then it would be subject to the same rules as other securities in traditional finance.

Then there are the sanctions that have followed such as the one on the crypto mixer Tornado Cash. Some have argued that the move to proof of stake makes it easier for these sanctions to be enforced. For example, some decentralized finance (DeFi) protocols such as Oasis have been blocking transactions from wallets associated with Tornado Cash. Back in August, Ethermine, the largest ETH miner, was said to have stopped processing all blocks that contained Tornado Cash transactions.

The Ethereum Merge is barely a month old at this point, so only time will tell if this was good in the long run or not. However, the market is currently focused on the price of the digital asset which has not seen much positive movement since the Merge and continues to trade just above $1,300.

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