According to a Bernstein research paper, Ether (ETH) requires “very little recovery in economic activity for the token economics to turn favorable,” which supports the “asymmetric growth model” of the cryptocurrency.
According to the study published on Monday, the merge, the process by which the Ethereum blockchain switched to proof-of-stake (PoS), significantly enhanced ether’s tokenomics by almost 90% reduced emissions, potential deflation, and more than 5% staking rewards.
The report added that ether can establish itself as a digital assets market leader thanks to the development of layer 2 blockchains.
The Merge, which entailed the switch from a proof-of-work (PoW) technique of confirming transactions and protecting the network to a more energy-efficient PoS consensus mechanism, was the first of five planned upgrades for the blockchain. Layer-2 blockchains are created on top of layer-1 blockchains to alleviate scaling and date issues.
Decentralized financing (DeFi), non-fungible-token (NFT) exchanges, and token transfers are driving the majority of the current burn activity. According to Bernstein’s projection, ETH’s deflation might reach roughly 4% annually.
The projected breakeven level of daily fees required to fully offset gross ETH issuance is thought to be about 2,100 ETH, which is where current levels stand, indicating that there has been a slight decrease in the amount of supply still in circulation.
Increasing transaction speed and affordability is another goal of Ethereum’s modular scaling strategy. More users will be able to join the blockchain as a result, especially because fees will also be lesser.
The Layer-2 scalability plan will result in the release and popularisation of Ethereum-compatible zero-knowledge (ZK) rollups. Bernstein projects that by 2032, there will be roughly 500 million monthly active users of the Ethereum stack, up from about 8.5 million at present.
One of the layer 2 architecture methods being researched to boost scalability is ZK-Rollups. ZK-Rollups combine hundreds of transfers into a single transaction, unlike Plasma, which makes one transaction for each transfer. The transfers held in a single transaction will all be broken down and verified by the smart contract.
On the Ethereum blockchain, the validity of the block is presented and publicly recorded using a “zero-knowledge proof” method. ZK decreases the amount of data retained in a transaction, decreasing the processing and storage resources required to validate the block; zero knowledge of all the data is required.
ZK-rollups are layer 2 Ethereum protocols that would aid in processing transactions off from the main network to boost speed and lower expenses.
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