The Ethereum Merge has been a long time in the making. Despite criticisms over its slow progress, the transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) is now approaching its final phase. With the completion of the tenth shadow fork on July 26 and the subsequent announcement of the Goerli/Prater merge, Ethereum is set to undergo a two-step process expected between August 4 and August 12, 2022 UTC time.
As the last testnet PoS transition before the mainnet merge, this milestone marks a pivotal moment in Ethereum’s evolution. But beyond the headlines, what are the deeper implications of The Merge? Are we overlooking critical shifts in supply dynamics, network scalability, and the broader blockchain landscape?
Will The Merge Trigger Deflation?
One of the most significant yet underappreciated outcomes of The Merge is its potential to make Ethereum a deflationary asset.
With the shift to PoS, new ETH issuance will no longer come from mining but from staking rewards. Validators who stake at least 32 ETH will earn yield for securing the network—effectively replacing miners with stakers. This transformation redefines how Ethereum’s monetary policy operates.
👉 Discover how staking could reshape your crypto strategy in a post-Merge world.
While PoW chains reward miners with newly minted coins, PoS reduces reliance on energy-intensive computation. More importantly, it changes the issuance model: post-Merge, annual ETH issuance via staking is estimated at around 600,000 ETH.
But here's where it gets interesting.
Since the London upgrade introduced EIP-1559, a portion of transaction fees has been permanently burned. Historical data suggests approximately 4.7 million ETH are burned annually under current usage levels.
So, what happens when new issuance (600K) is far outweighed by burns (4.7M)?
Net supply change = 600,000 – 4,700,000 = –4.1 million ETH per year
Given Ethereum’s circulating supply of roughly 120 million ETH, this translates to an annual deflation rate of about –3.5%.
This structural shift means Ethereum could enter a sustained period of deflation—where more ETH is destroyed than created. Such dynamics place strong upward pressure on price from the supply side.
Moreover, increased demand for staking further tightens supply. With over 5% APR available through staking (and expected to stabilize around 4.8% post-Merge), ETH becomes not just a speculative asset but a yield-generating one.
Raoul Pal, founder of RealVision, argues that a 4.8% staking yield could become the benchmark risk-free rate in the crypto economy—similar to how U.S. Treasury yields anchor traditional finance.
In this new paradigm:
- Any DeFi protocol offering less than 4.8% yield would struggle to attract capital.
- Higher yields imply higher risk premiums.
- Ethereum becomes the foundational layer for value accrual and interest rate discovery.
How Does The Merge Affect Scalability?
A common misconception is that The Merge will immediately improve Ethereum’s speed or reduce gas fees. It won’t.
The Merge is primarily a consensus layer upgrade—switching from PoW to PoS. However, gas fees are determined by the execution layer, which remains unchanged during this phase.
So while energy consumption drops by over 99%, transaction throughput (TPS) and fee volatility stay largely the same in the short term.
But The Merge is just the beginning.
Vitalik Buterin has outlined a broader roadmap: The Surge, The Verge, The Purge, and The Splurge—phases designed to scale Ethereum in parallel with the transition to PoS.
The Surge: Scaling Through Rollups and Sharding
The next major leap comes with The Surge, which aims to boost scalability via sharding and rollup-centric scaling.
Ethereum plans to introduce 64 shard chains, each capable of processing transactions independently. Think of it as turning a single-lane highway into a 64-lane superhighway—dramatically increasing bandwidth.
These shards will serve as data availability layers for zk-Rollups and optimistic Rollups, enabling Layer 2 solutions to batch-process thousands of transactions off-chain before settling on Ethereum.
When fully implemented, this architecture could push Ethereum’s throughput into the tens of thousands of TPS, rivaling centralized systems while maintaining decentralization and security.
Vitalik’s earlier writings, including his “Endgame” essay and “Incomplete Guide to Rollups,” emphasize that rollups are already the de facto solution for near-term scaling. Combined with future sharding, they create a compounding effect on performance.
Will the Broader Blockchain Landscape Shift?
Despite Ethereum’s dominance, competing Layer 1 blockchains like Polygon and BNB Chain have gained traction by offering lower fees and faster transactions—especially during periods of high congestion on Ethereum.
However, their competitive edge lies mainly in short-term UX improvements, not long-term architectural superiority.
Post-Merge, Ethereum maintains similar TPS initially—but its roadmap sets it apart. While alternatives rely on vertical scaling (faster nodes), Ethereum pursues horizontal scaling through modularity: separating consensus, execution, and data availability.
New entrants like Aptos and Sui bring fresh narratives around Move language and parallel execution. Yet history shows that overcoming Ethereum’s ecosystem depth, developer activity, and composability is incredibly difficult.
From EOS to Solana, past challengers failed to sustain momentum against Ethereum’s adaptive strength. These newer chains may innovate, but replicating Ethereum’s network effects remains a steep climb.
👉 See how next-gen blockchain innovations compare in a post-Ethereum-Merge era.
Frequently Asked Questions (FAQ)
Q: Does The Merge reduce gas fees?
A: No. Gas fees are determined by network demand and block space availability, which remain unchanged after The Merge. Fee improvements will come later via Layer 2 rollups and sharding.
Q: Will Ethereum become deflationary after The Merge?
A: Yes, under current usage patterns. With EIP-1559 burning more ETH than PoS staking issues, net supply is expected to decrease—making Ethereum structurally deflationary.
Q: Can I stake less than 32 ETH?
A: Yes, through liquid staking protocols like Lido or Rocket Pool. These allow users to stake any amount and receive staking derivatives (e.g., stETH) that represent their share.
Q: What happens to Ethereum miners after The Merge?
A: Miners will no longer be part of the consensus mechanism. Some may transition to GPU-based projects or alternative PoW chains like Ethereum Classic (ETC), which could absorb displaced hash power.
Q: Is The Merge safe? Could it fail?
A: The extensive testing across multiple testnets—including Goerli—has minimized technical risks. While social and economic challenges exist (e.g., chain splits), core developers consider it highly secure.
Q: Does The Merge enable immediate scalability?
A: Not directly. Scalability improvements come with future upgrades like The Surge and full sharding integration, which will work in tandem with rollups.
The Ethereum Merge isn’t just a technical upgrade—it’s a foundational shift in how value is secured, issued, and scaled within one of the most important networks in crypto.
From deflationary pressure and staking-driven yield economics to a modular path toward massive scalability, the ripple effects go far beyond headlines.
As Ethereum evolves into a more efficient, sustainable, and economically robust platform, it reinforces its position not just as a smart contract leader—but as digital infrastructure for the future.