On August 5, 2021 Ethereum executed an upgrade known as the London hard fork. This fork brought on a major change in the form of EIP-1559—a code that began to remove ETH from circulation and changed how transaction fees on Etherum work.
Currently, anyone who makes a transaction on the blockchain pays a base fee that is burned (rather than going to miners). Burning is the process of sending something to an inaccessible address. ETH is sent to a burn address that takes it out of circulation.
Although new ETH is created every time a block is added to the chain, a small amount of ETH is also disappearing, causing a deflationary pressure on the network.
A similar scenario has already been experienced on the Bitcoin blockchain. Bitcoin’s most recent halving occurred on May 11, 2020, when BTC rewards were reduced from 12.5 BTC to 6.25 BTC. At that time, Bitcoin was $8,800.
Then, as many of us know, it nearly doubled in price over the next six months, and today 1 BTC costs about $31,000.
Now Ethereum is about to experience what’s referred to as “Triple Halving”.
In theory, the combination of EIP-1559 and The Merge into a proof-of-stake mechanism, would represent a “triple halving,” as they would reduce sell pressure by an estimated 90%.
The Merge will cut rewards for new blocks drastically from 12,800 ETH to 1,280 ETH per day (about 90% according to Blockchain analytics firm IntotheBlock), creating a system where more ETH is burned via gas fees than is created daily. As a result, ETH will become a deflationary asset, where before, it was an inflationary one.
Because the amount of ETH issued post-merge is expected to drop by 90%, many are speculating that the price of ETH could skyrocket. But, no one knows if that will happen for sure.