Ethereum has established itself as the top one smart contract blockchain and is the envy of all others blockchain networks, and if it proceeds with its roadmap, like with the successful “The Merge”, it will make Ethereum to become the number one currency of the internet.

In this article you will understand the effects after the Merge on Ethereum, and its next steps.

Ethereum has become a Deflationary System after The Merge, you might also heard the expression/meme that “ethereum is ultra -sound money” that means Ethereum is right know burning more ETH than is being produced, which would decrease the Ethereum supply over time.

Learn in this article Ethereum & Bitcoin Deflationary Systems. What are they, the differences between them after The Merge ( 15th Sep. 2022) and their completely different value propositions. A straight to the point comparison and explanation between Ethereum Deflationary system and Bitcoin deflationary system.

After reading this article anyone, tech and non tech people, will fully understand what a deflationary system is and why they make Ethereum and Bitcoin completely different, so that you will also learn the different value propositions that each crypto have.

If you have the curiosity, of what the future not might bring, but will bring, have an excitement of being ahead by understanding what all this will bring to our lives, then this article is for you.

In these days, the blockchain technology and developers, are building and shaping our future lifestyles, through new economy models that will lead the Web3; DeFi, NFT´s, dNFT´s, new parallels virtual words, so…

Let´s get into The new Ethereum’s upgrade and you will be ahead on what is coming.

In this article:

1. The differences between Bitcoin deflationary system vs Ethereum deflationary system.

2. Ethereum critics answered.

3. Ethereum Roadmap after The Merge.

1. DIFFERENCES BETWEEN BITCOIN AND ETHEREUM DEFLATIONARY SYSTEM.

1.1 INTRO “BITCOIN IS LIKE GOLD, ETHEREUM IS LIKE OIL”

You might come with this comparison across the internet, when articles try to explain crypto assets by making comparison with assets that we all know and understand, in my opinion, I found them brilliant as they allow to land very well what are they and their nature, in a very easy straight forward way:

“Bitcoin is like gold, Ethereum is like oil”

Yes sir! Bitcoin since it was born, has always been related to a “store of value” like Gold and this is its main objective, meanwhile Ethereum has been related to “the fuel” of crypto, with a wider scope and thanks to that “oil” we have kind of cars, roads and we can drive, by that means that Ethereum is a platform where there are smart contracts that allow us to execute Defi, Dapps, Nfts, dNfts… so that, web3.

1.2 BITCOIN DEFLATIONARY SYSTEM. SCARCITY AND PoW.

Bitcoin has a deflationary nature, one of the main reasons Bitcoin earns its comparisons to gold, because there will only ever be 21 million bitcoins in existence, it has been programmable in its protocol, and no one can change it.

There won´t be more issuance than 21 million and this is the key why bitcoin is valuable, by its scarcity.

Therefore, if demand for bitcoin continues to grow, the price of bitcoin will have to go up. And till now, at this very moment, bitcoin is a huge store of value as scarcity crypto-coin with a Proof of Work -PoW- consensus mechanism. And this is its value proposition till today, to be a “Store of value”, which is a safe haven asset.

1.3 ETHEREUM DEFLATIONARY SYSTEM. SMART CONTRACT PLATFORM AND PoS.

Meanwhile, Ethereum it is a Smart Contract Platform. Smart Contracts are, in a few words, little pieces of code with instructions on top of Ethereum, that can be executed by the EVM. This Smart Platform, needs Ethereum crypto-coin/token to burn for executing smart contracts ( Defi, Nfts, dNfts, Dapps…) and this “burn” mechanism is related to the EIP-1559, also the consensus algorithm was -PoW- , the same as Bitcoin, but this is no longer like that since the 15th of September, since 5 days ago.

Right now, after The Merge, Ethereum it is no longer a -PoW- but a -PoS- Proof of Stake consensus mechanism.

And these two combined factors. EIP-1559 and The Merge, made Ethereum a deflationary system.

Let me here explain very step by step, how this deflationary system work in a way to digest much better this “deflationary concept”, I promised!

· What is EIP-1599 and its upgrade within The Merge. SETP 1.

Ethereum Improvement Proposal EIP-1559, was released in July 2021, and it was one of the many EIPs.

Ethereum is a decentralized platform, has not a central controller so that, the community needs to agree and vote on any changes to the network. Despite “The Ethereum Foundation” leads much of the work on Ethereum, they cannot change Ethereum at will.

By April 2019, a team of the Ethereum community’s leaders, Vitalik included, made a proposal called EIP-1559 and their proposal consisted, among other things, to improve the incentive structure for miners securing the network and this was to improve the incentives or rewards, that the miners were given by working in the -PoW- consensus algorithm.

These improvements were through 2 main streams:

A. Changing how transaction fees on the network are calculated.

Their argumentations were that it didn´t make any sense, for example, in high-demand periods where you might have to pay 10x as much in transaction fees as normal, the Ethereum network wasn´t doing 10x as much work. What does it mean is that the extreme volatility in gas, prices didn´t reflect the value of the economic activity they were paying for.

Gas, on Ethereum, is what you have to pay as a transaction fee and whatever you need to do on Ethereum blockchain, you will need to pay “gas”.

B. Changing how miners are rewarded for securing the network.

Before EIP 1599 were in the mainnet, before July 2021, when you made a transaction on Ethereum, the transaction fee you paid were going to the miners for securing the Ethereum network. Plus they also earn Ethereum in the form of block rewards, which is the new Ethereum created with each block.

So Miners were receiving Ethereums in 2 ways, transaction fees and block rewards.

After EIP 1599, under 1559 the base fee you pay for your transaction, instead of going to miners, would be burned. In those cases you wanted to pay an extra amount of fee, as a tip, due to high periods of demand…this “tip thing” would be a miner reward.

Block rewards would still exist, but now there would be two competing forces on Ethereum’s supply. Each block will print 2 ETH in the form of block rewards. But it will also burn an unknown amount of ETH, depending on how much activity there is on the network.

This means that Ethereum is deflationary, even more deflationary than Bitcoin. Bitcoin has a fixed supply cap of 21,000,000 bitcoins, with the final bitcoins being released around 2140. Each Bitcoin block currently pays out 6.25 bitcoin to miners, and that amount gets cut in half every four years. So the supply being issued is decreasing, but there is still more supply being issued.

With 1559 and The Merge, Ethereum will start burning more ETH than is being produced, which would decrease the Ethereum supply over time.

· The Merge from PoW to PoS. SETP 2.

The Ethereum Merge represented the biggest update in the Ethereum network ( released 15th sept. 2022).

The Ethereum network before The Merge, was the proof-of-work (PoW) consensus mechanism, which means that miners who run hardware, issue blocks and validate transactions in exchange for transaction fees.

In the proof-of-stake (PoS) model consensus algorithm , the network is secured by validators who stake ETH. Despite some critics, that I will go through all off them before, the transition to PoS makes the Ethereum network more secure, and energy-efficient and enables scalability.

The energy usage of Proof of Stake is estimated by measuring the hardware requirements of each client, estimating each client’s energy usage, then weighting the usage by the distribution of clients among the total number of nodes in the network.

Ethereum´s developers planned the merge in two:

1. To create a PoS chain called Beacon chain works parallel with the main chain in late 2020. The purpose was to gather enough ETH to secure the chain and not interrupt the main Ethereum network.

2. The merge of the PoS Beacon chain and the PoW main Ethereum chain.

After the merge, the Beacon chain will be the consensus engine and the engine for block production. PoW will not be the mechanism for producing the blocks, therefore, mining will not be the means of block production.

Just a few days ago of the Merge, a well known TW account published

Also I recommend you to watch this Ivan on Tech video, a famous blockchain developer, explaining the Ethereum effects after becoming a deflationary system and this article by Finematics to fully go through all the The Merge impacts.

And for more info about The Merge impact with data, I recommend you to read this article by Rock Lobstah.

2. ETHEREUM CRITICS ANSWERED.

As Justin Bons explained in a very detailed Tweet thread after The Merge,

He published that “ETH is more secure, decentralized, scarce & censorship resistant than BTC.”

let´s go into the main 4 critics and the response:

Critic 1. That staking requires validators to keep private keys online or on exchanges & are therefore subject to KYC

Response. This is demonstrably false. PoS systems worth their salt use separate staking keys derived from the private key.

Critic 2. BTC is more environmentally friendly because PoW can go carbon negative & PoS cannot.

Response. By Vitalik, Ethereums co- funder, “The Merge will reduce worldwide electricity by 0.2%”.

Since the merge, the ETH emissions rate has dropped by about 15x.

That’s 15x less ETH entering the supply since the change from PoW. Emissions will decrease by about 10k ETH/day, with some variance.

Critic 3. when you stake with a pool in ETH that it is always custodian, unlike BTC

Response. There are now decentralized staking pools such as RocketPool & Lido That are entirely non-custodial.

Critic 4. People who claims that PoS=oligarchy & PoW=democracy

Response. Justin B. Tweeted “I will bite the bullet on this one & say that both PoW & PoS more closely resemble an oligarchy However, PoS is far more democratic as it is more inclusive One CPU one vote is not democratic at all.

My view is that ETH is clearly a better Bitcoin than BTC could ever be PoS furthers decentralization!”

3. ETHEREUM ROADMAP AFTER THE MERGE.

After The Merge, the second most likely suite of features to be included are updates to the Ethereum Virtual Machine (EVM).

There have no been updates made to the EVM in over 2 years, the developer-oriented mechanism underlying Ethereum, that defines the governing rules how blocks on the network interact.

Another rumored Ethereum feature, is proto-danksharding, that has to do with the scalability technology rollups.

Proto-danksharding would serve as the preliminary version of danksharding, a process by which large amounts of data on rollups are verified by only sampling small pieces of data. The update would highly increase the speed and ease the data that have to be verified on Ethereum layer-2 networks like Optimism and Arbitrum.

According to Vitalik, Ethereum is now only 55% complete.

3 big upgrades after The Merge are still to come:

• The Verge

• The Surge

• The Splurge

  This is an Ethereum´s Roadmap diagram updated ( 6 nov. 2022) by Vitálik

Afterward, Ethereum should be able to process 100K transactions per second.

A days ago Vitalik published an article about Layer 3** **“One topic that often re-emerges in layer-2 scaling discussions is the concept of “layer 3s”. If we can build a layer 2 protocol that anchors into layer 1 for security and adds scalability on top, then surely we can scale even more by building a layer 3 protocol that anchors into layer 2 for security and adds even more scalability on top of that?”

Ethereum has been relatively slow, horribly expensive, and very energy consumptive. The Merge is the first step in eliminating all these objections. If it proceeds smoothly, Ethereum will be unstoppable and first cryptocurrency.