For quite some time, Ethereum, the most used and valuable altcoin by market cap, has been planning a software upgrade. This update would fundamentally alter Ethereum and have a big impact on your digital assets.
Since its inception, Ethereum has been the largest and most widely used smart contract blockchain. However, as more capable rivals race to catch up and get perilously close, Ethereum is switching to a less energy-intensive technology to power its blockchain. Although the Ethereum Foundation now refers to it as the Ethereum Merge, it was previously known as Ethereum 2.0 or Eth2. The update could potentially reverse market movement, resulting in a more bearish market, especially given the reasons behind the current crypto market crash.
And in the history of the entire crypto industry, this is one of the most anticipated moments.
What is the ‘Ethereum Merge’?
The Merge represents the Ethereum network’s transition to proof-of-stake (PoS), its new system for crypto transaction authentication. The new system will replace the proof-of-work (PoW) system that has been in place for years. This is being done with the primary goal of becoming more energy sustainable, but it will also make it more secure and scalable.
Ethereum Merge is attempting to address one of Ethereum’s most serious issues. It has been plagued by network congestion and transaction fee issues since it became popular among developers building dApps, smart contracts, and DeFi protocols.
This new Ethereum Merge Update, on the other hand, is slated to solve a large portion of those problems and keep the network ahead of its competition, as well as reward those who have been with them along the way and staked actual value for the Ethereum 2.0.
Benefits of the Merge
- This is a more efficient consensus mechanism in terms of network logic, which will benefit the Ethereum ecosystem as a whole.
- Sharding essentially lays the groundwork for the Ethereum ecosystem’s future scaling upgrades, which will be required as the crypto ecosystem and market mature.
- This transition from PoW to PoS would also result in a 99.95% reduction in the energy consumption seen in Ethereum PoW, making it one of the most radical moves in the crypto industry.
- The successful completion of the Ethereum Merge would also result in a significant change in the fundamental functioning of the system, opening the door to many more use cases in the space.
Risks associated with the Merge
The Merge does have some risks associated with it. Some critics argue that even if the Merge goes smoothly, a proof-of-stake system risks centralizing cryptocurrency while jeopardizing security.
Many of these are companies or investors who have built expensive data centers solely for the purpose of mining ether using the proof-of-work system. If ether switches to a stake-based system, these businesses could lose millions of dollars or go out of business entirely.
Several of the Merge’s most vocal opponents have already announced their intention to fork Ethereum in order to maintain their PoW protocols. While this may keep wealthy miners in business, multiple Ethereum forks have the potential to fracture the market.
How will the Merge affect Supply, Gas Fees, Transaction Speed & Energy Consumption?
The question on everyone’s mind is how the Merge will affect major aspects of the network’s operation. Here are a few points that should help answer these questions:
Supply
The current ether inflation rate has been steadily increasing since the project’s inception, which many crypto enthusiasts have frequently cited as a negative feature of Ethereum. Ethereum has a much higher inflation rate than Bitcoin and no theoretical limit on total supply. The fundamentals of Ethereum are likely to change as a result of the planned upgrade.
The Ethereum upgrade will most likely reduce the total ETH supply and allow token holders to stake their tokens. Because of the expected yield generated by staking, total market interest in Ethereum is likely to increase as investors can participate in income generation for holding their ETH. A decrease in the total supply of ETH will almost certainly be viewed positively by the second largest cryptocurrency.
Gas Fee
Transaction fees for Ethereum are not expected to change as a result of the Merge. Future network updates, such as danksharding and proto-danksharding, may help to alleviate Ethereum’s high network fees, but these are not expected until at least 2023.
Transaction Speed
In today’s PoW system, Ethereum blocks are issued once every 13 or 14 seconds on average. Following the Merge, PoS blocks will be issued at 12-second intervals. This is not a noticeable improvement for most users, and it keeps Ethereum behind rival blockchain networks like Solana and Avalanche.
Energy Consumption
The Ethereum Merge will improve the Ethereum network’s efficiency. The PoS upgrade will significantly reduce the energy requirements of the Ethereum blockchain, as well as the network’s overall consumption. Those who want to secure the network will no longer need to run expensive and inefficient mining hardware but instead will be able to run a validator node.
What lies ahead for Ethereum after the Merge?
Experts believe that the successful implementation of the Merge on the mainnet will be a major catalyst for Ethereum’s growth. This is due to the fact that, with this release, Ethereum will be directly competing with all other PoS-based blockchain networks — and it already has a head start in terms of total value locked and the number of developers building on the blockchain. The increase in the value of Ethereum would also result from the fact that the Ethereum Merge would speed up the processing on the chain, provide greater security and scalability, and result in a 99.95% reduction in Ethereum’s energy consumption.
The positive momentum generated by Ethereum is expected to spread to other crypto projects built on top of the ETH blockchain, potentially leading to an overall positive movement in the crypto market.
