Is someone out there buying ETH because of the power that went in to mining it? It's more about supply and demand, I think. The supply of ETH does change after the merge, but from what I understand there will be less generated than before.
All the tokens and contracts that use Ethereum will still need to pay gas fees and now instead of miners earning ETH, stakers will.
I don't understand what you mean. Stakers get ETH "for free" and therefore they crash the price? But the demand for ETH will still be there just like it was for mining.
I don't really understand how Ethereum works very well. They are trying to tweak the ETH generation to make the merge work (see the ultra sound money memes). Just because stakers don't have to work hard doesn't mean ETH will crash.
The whole thing does kind of seem hand wavey and magicky (compared to proof of work, I mean) but I've had a hard time finding resources that explain how it works simply.
Ok, a real life comparison, lets say there are 1000s of real life mines around the world that currently mine gold for say $50 per gram, but suddenly a processing technique lowers that cost for all miners to $0.50 per gram. In any normal market the price of gold should trend down.
How about this - X units of gold are produced each year. Then all of a sudden it's cheaper to mine gold, but magically still only X units of gold can be mined each year. What happens to the price of gold? What if less than X units are mined?
From what I understand, ETH issuance rate is going to go down after the merge.
In your hypothetical, demand stays the same. The supply stays the same, too - because the gold mines are still limited to the same amount of gold they get out of the ground.
So long as the amount of gold is mined unchanged, the fact that the processing is cheaper makes the mine more profitable but doesn’t change the price of gold.
You would be right if it continues to be proof of work. More miners would mine more ETH.
But this is not the case, the 'mined' ETH will come from proof of stake. Some people with more than 32 ETH and an online server will keep the engines rolling and get 5% in return for their service.
The less power is because the electricity is used for serving instead of mining.
The supply of ETH is only related to electricity when it's possible to mine it with electricity. Otherwise, what keeps the price of crypto up is people competing to get currency for uses like remittance. Since sending money to another country using a cryptocurrency ties up an amount of currency for a period of time, users have to compete for the available tokens in order to exchange with them.
That's my point though, after the merge the proof of stake nodes are earning a lot of ETH for a fraction of the previous cost, the only way price should stay stable is if everyone with a stake agrees not to undercut each other.
>earning a lot of ETH for a fraction of the previous cost
That will only be true if mining is a significant contributor to the availability of ETH. Instead, I think that most ETH comes from sellers of existing tokens rather than miners.
How do you know it's a "fraction of the previous costs?" You do need to buy ETH instead of hardware. I did some quick searches and got varying interest rates, so I'm not sure what the expected return is.
I would expect the opposite, actually. To pay for electricity, miners have to constantly sell some of the coins they earn. All else being equal, when there are more coins being sold, the tendency is for their price to decrease; once there are less coins being sold, because miners no long need to sell as much, the tendency becomes for the price to increase, or at least, decrease less.
Price is due to supply and demand, not due to energy cost.
The amount of new Ether being minted is projected to drop by 90% after the merge, so new supply will be much lower. If anything, this creates upward price pressure rather than downward price pressure.
In theory the price of any cryptocurrency is close to $0 as they are all fundamentally swappable, especially when used as a means of moving fiat between two parties.
This seems plausible as the prices historically for both eth and btc have followed the cost to mine. A significant portion of the crypto world is directly propped up by miners in an effort to drum up demand.
Things will change monumentally so it’ll be very interesting to see what does happen.
