What is Ethereum Triple Halving? Impact on ETH Prices and Transaction Fees

Introduction

An important milestone in Ethereum’s journey is the shift from a proof of work (PoW) to a proof of stake (PoS) model, known as the Ethereum Merge upgrades. This shift has given rise to the term ‘Ethereum Triple Halving,’ generating significant interest among investors, traders, and industry experts eager to understand its potential impact on ETH prices and transaction fees.

This article delves into the Ethereum Triple Halving, exploring its implications for users, developers, and stakeholders. It also considers current market expectations and sentiment surrounding ETH’s price dynamics before and after the implementation of this deflationary model, equipping readers with valuable insights for their investment decisions.

Lets deep dive and understand what brought up the importance and the interest of Ethereum Triple Halving.

What is Ethereum Triple Halving?

The Ethereum Triple Halving is a process that entails reducing the block reward for ETH, transitioning from three (3) ETH per block to just one (1) ETH. This reduction occurs approximately every four to six years and serves the purpose of curbing inflation within the Ethereum network, ultimately working to enhance the long-term value of ETH. The name “Ethereum Triple Halving” draws its inspiration from the concept of Bitcoin halving, where Bitcoin mining rewards are halved every four years. While similar in principle, the Triple Halving on Ethereum occurs on a much larger scale. It achieves this by diminishing the rewards miners receive each time they successfully validate a transaction block. Like Bitcoin halving, Ethereum miners are granted tokens when new coins are minted. 

Additionally, Ethereum compensates miners with transaction fees associated with each successfully mined block.

In short, the reason for the event being called Ethereum Triple Halving is because

• Currently, the base fee percentage is 12.5%, meaning 12.5% of gas fees are burnt. But there are plans to raise this to 25% through the Ethereum Shanghai Upgrade, that took place in March 2023.
• On top of this, another upgrade called Surge is planned to follow soon after. This will increase the base fee percentage again to 50%.
• Together, these two upgrades will reduce the issuance rate of new Ether by around 90% – equivalent to three halvings happening back-to-back. This is why it’s referred to as “Ethereum triple halving”.

Additional Read: What is Litecoin Halving?

Who is Nikhil Shamapant?

Nikhil Shamapant is recognized for developing the idea of the Ethereum Triple Halving, a mechanism designed to transform Ethereum into a deflationary asset. 

Nikhil’s rationale behind the Ethereum Triple Halving involves scrutinizing financial flows to project the influence of the halving event on Bitcoin and predict the potential price trajectory of Ethereum by January 2023. Despite Nikhil presenting his thesis on the Triple Halving in 2021, the relevance of Ethereum Triple Halving has been revitalized following the successful Merge of the Ethereum network.

How does Ethereum Triple Halving Work?

The Ethereum Triple Halving mechanism is proportional to three main reasons.

Reduction in Daily Coin Issuance:

Operating a Proof-of-Work (PoW) node entails significant expenses, encompassing substantial electricity and facility costs. Miners in PoW systems depend on rewards to offset these expenditures, contributing to higher issuance rates. In contrast, Proof-of-Stake (PoS) mechanisms, where validators have lower operational costs, alleviate the necessity for elevated issuance. As a result, the rewards for validators decrease, leading to a notable reduction in the annual token supply growth, plummeting from 4% to approximately 0.5%. This transition is reflected in the daily Ethereum issuance, witnessing a substantial decrease from 13,000 ETH to an average of 1,700 ETH.

Ethereum Staking:

Proof of Work (PoW) prioritizes computational power, giving an advantage to miners equipped with powerful setups. In contrast, Proof of Stake (PoS) focuses on the amount of assets staked on the network rather than computational prowess. Validators with higher stakes enjoy an increased likelihood of validating blocks, and the assets they stake are temporarily removed from circulation during the staking period. 

The integration of the Beacon Chain into the Ethereum mainnet through The Merge is a pivotal development in this transition. Validators are required to stake a minimum of 32 ETH, and their probability of block validation is influenced by their individual stake and the assets staked through their specific portal. Consequently, a substantial portion of the Ether supply is presently locked due to the widespread adoption of staking within the network.

Ethereum’s Coin Burning Mechanism:

EIP-1559, introduced as part of the London hard fork in August 2019, has significantly impacted the dynamics of Ethereum by implementing a mechanism that burns a portion of ETH transaction fees. In the three years since its inception, over 2 million Ether coins have been permanently removed from circulation through this burning process, making it one of the causes to be listed within the naming of Ethereum Triple Halving.

The burnt ETH is directed to an inaccessible wallet, effectively taking it out of circulation indefinitely. EIP-1559 brings about a transformative shift in the fee system by introducing base and priority fees, rendering Ethereum a deflationary asset. 

This deflationary nature stands in contrast to Bitcoin’s fixed supply model, and it has led to Ethereum being colloquially referred to as “Ultrasound Money.” This innovative approach to transaction fees and supply dynamics distinguishes Ethereum as a blockchain with unique economic characteristics.

Learn More: Ethereum Price Prediction 2025

Ethereum Migration from PoW to PoS & the Merge

Initially, Ethereum was introduced as a conventional crypto. Nonetheless, as it expanded, the founders recognized certain issues related to its scalability. Consequently, they made a strategic decision to modify their network, aiming to rectify these issues and ensure the uninterrupted operation of the blockchain as a development platform.

Commencing in 2020, Ethereum embarked on the official transition known as the Ethereum Merge. Under the Proof of Work (PoW) system, individuals employ computers to solve complex mathematical puzzles in exchange for rewards. In contrast, Proof of Stake (PoS) relies on the random selection of validators who have staked their crypto to validate transactions.

The PoW approach has sparked controversy due to its cost and adverse environmental impact. Meanwhile, PoS is easier to implement and demands fewer resources for management, rendering it more scalable for validating new transactions and fostering greater engagement among Ethereum blockchain participants.

In December 2020, Ethereum introduced the Beacon Chain to trial Ethereum staking. The success of this initiative led to the decision to integrate the Beacon Chain into the primary chain, a milestone referred to as ‘The Merge.’ Implemented in September 2022, ‘The Merge’ transformed the primary Ethereum chain into a PoS-based consensus mechanism.

The following chart shows the change in the supply of ETH since the transition of the blockchain to Proof-of-Stake.

Read On: Ethereum Cancun Deneb(Dencun) Upgrade

How does Ethereum Triple Halving Affect the Price of ETH?

Even though there is no particular Ethereum Triple Halving price prediction, the phenomenon of Ethereum triple halving signifies three key factors limiting the supply of ETH:

• Reduced ETH Issuance (Proof-of-Stake): With Ethereum’s shift to Proof-of-Stake, validators on the chain are now responsible for validating transactions on the network and get paid in ETH for it. However, the issuance of ETH has gone down considerably ever since the Merge. Pre-Merge, miners used to 4,931,000 ETH per year but now that has slipped to around 600k ETH per year, post-Merge.
• ETH Burning (EIP-1559 Upgrade): EIP-1559 introduced a fee structure that burns a portion of transaction fees, permanently reducing ETH’s supply.
• ETH in Circulation: Now, with the PoS structure in place, there is lesser issuance of ETH, more ETH being burned – there is a reduction in the free circulation of ETH.

These factors decrease ETH’s supply, typically leading to price increases. However, ETH’s price is also influenced by market sentiment, demand, and regulations. So while the triple halving is expected to be bullish for ETH long term, other factors will play a role.

Read On: Will Ethereum Price Ever Reach $10,000?

Conclusion

The Ethereum triple halving significantly reduced ETH supply, making it a more attractive long-term asset. This shift towards slight deflation occurred after the transition to Proof-of-Stake during the Ethereum Merge. While the ETH Triple Halving is an intriguing consequence of these changes, it’s essential to do your own thorough research before selecting the token for investment.