Given that the merge reduces the electricity cost for new Ethereum by ~1000x, won't the price just tank in a race to the bottom?
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 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.
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.
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.
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.
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.
Things will change monumentally so it’ll be very interesting to see what does happen.