In-Depth Analysis

【BP In-Depth Analysis】Ethereum and ETH- Part 3 $ETH Economic Model

7 Mins read
In-Depth Analysis

【BP In-Depth Analysis】Ethereum and ETH- Part 3 $ETH Economic Model

7 Mins read

Economic Model before The Merge

Deifinition

Ether ($ETH) is the native cryptocurrency of Ethereum Network. The purpose of $ETH is to allow for a market for computation. Such a market provides an economic incentive for participants to verify and execute transaction requests and provide computational resources to the network.

$ETH Generate Details-Block Rewards

New $ETH are generated via block rewards, initially set at 5 $ETH per block. Those block rewards incentivize miners to secure the network. Miners that find an uncle block also receive 87.5% of the base block reward. Uncle blocks occur when several distinct miners simultaneously mine a block. In this case, the block that has the most accumulated PoW is conserved, and others are rejected.

Token Functions

$ETH used to provide crypto-economic security to the network in three main ways:

Launch & Initial Token Distribution

  • 3,700 BTC were raised in the first 12 hours of the sale;
  • Over 25,000 BTC were raised in the first 2 weeks;
  • The sale eventually allowed the Ethereum Foundation to raise over 31,000 BTC, equivalent to $18.3 million.
  • 3 million were allocated to a long-term endowment;
  • 6 million were distributed among 85 developers who contributed prior to the crowdsale;
  • 3 million were designed as a “developer purchase program” which gave Ethereum developers the right to purchase ether at crowdsale prices.

Supply Schedule

General Emission Type: Inflationary

Economic Model after The Merge

New Definition and Token Functions

After The Merge, $ETH will be required to validate and propose blocks on Mainnet. $ETH is also used as a primary form of collateral in the DeFi lending markets, as a unit of account in NFT marketplaces, as payment earned for performing services or selling real-world goods, and more.

Main Changes/Impacts Summary

1) The Merge will decrease $ETH supply, with estimates suggesting a high likelihood of periods of negative net issuance rate.

Changes/Impacts Details

ETH Issuance Rate

Staked $ETH

Cryptocurrency issuance depends inversely on the amount of ETH staked — — The issuance of new cryptocurrency units will now remain in the hands of validators and not miners. The mechanism has its roots in a compensation structure dependent on the number of validators, as explained in the Ethereum 2.0 roadmap.

Epilogue

The merger of Ethereum 2.0 can be regarded as a key milestone for the network, which has brought dramatic changes to both the Ethereum Network and the $ETH Economic Model . In the next article, we will introduce the $ETH Application Scenarios. Don’t forget to follow us to get more information.

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