What is Ethereum Merge?
Ethereum is one of the oldest blockchain cryptocurrencies. It was the first crypto to introduce smart contracts — the technology that makes blockchains programmable — and it still hosts a large portion of apps and projects. But its network faces severe congestion and high gas costs, and it consumes as much energy as an entire country.
The solution? Giving Ethereum a whole new engine. It needs to move from the proof-of-work model used by Bitcoin (BTC) and some other older cryptocurrencies to a greener and more scalable proof-of-stake model. But just as it’s not easy to work on a car’s engine while it’s speeding down the highway, it’s not easy to upgrade the Ethereum system while it’s still powering much of the decentralized finance (DeFi) industry.
Currently, there are two systems running in parallel. The Ethereum merger is when his team essentially shuts down the old system and lets the new one run. It recently completed merging its final test network, which is the last step before it goes live. The man behind Ethereum, Vitalik Buterin, recently said at a conference in Denver that this will happen in the coming months.
What the merger means for Ethereum
The long-awaited integration is an important milestone for Ethereum. In fact, as DeFi Llama shows that more than half of the money locked in DeFi applications is in the Ethereum network, the successful integration of Ethereum is important for the entire industry. But remember, this project has been around for years, and the merger is just one step in a much longer process.
As an investor, try to keep a long-term view instead of buying into the short-term hype. It is difficult to predict whether the price of Ethereum will reach a height that it cannot sustain in the coming months. But if you try to see the current evolution of Ethereum for five to ten years, you are less likely to be fried by the price frenzy.
The big change for Ethereum is that proof of stake consumes only a fraction of the energy of proof of work. Currently, Digiconomist energy researchers estimate that Ethereum consumes as much energy annually as the Netherlands. The merger will reduce Ethereum’s electricity consumption by around 99.5% – a huge reduction.
However, the merger won’t solve all of Ethereum’s problems. For example, as stated Tim Beiko, Ethereum developer, to Fortune, it won’t significantly reduce gas costs. That won’t happen until the final phase of Ethereum’s massive technical upgrade, which is expected to take place next year. Upgrading “Shard Chains” will make the network more scalable, solving some of its congestion problems and thus reducing transaction fees.
One thing this will do is reduce the supply of Ethereum. Along with the London fork upgrade last year, which started burning ETH with every transaction, some predict that Ethereum will become deflationary – there will be more ETH destroyed than minted ETH. This shortcoming could have significant consequences on Ethereum’s price.
Finally, the merger will give investors more opportunities to stake their ETH and earn rewards. The “proof-of-stake” validation model requires Ethereum holders to immobilize their coins to contribute to the network’s security. Some investors are already doing this in parallel systems. But after the merger, analysts believe staking rewards could double, providing better returns for investors.
What the merger means for investors
The Ethereum merger is a big deal, and many analysts believe it could push Ethereum’s price to new highs. In fact, Ethereum has already grown by more than 30% in the past two weeks, thanks to its successful testnet merger. Ethereum is already a well-established cryptocurrency project that forms a large part of many investors’ long-term portfolios. A successful upgrade will allow it to compete with the new, faster and cheaper Ethereum alternatives, which have gained significant market share over the past year.
However, there are also reasons to be cautious. Cryptocurrencies do not have the same basis as, for example, stocks, which you can use to evaluate them. This difficulty in valuation makes the cryptocurrency market more susceptible to a phenomenon called “Buy the rumor, sell the news”. Prices rise due to speculation about a certain event and then fall when it actually happens.
Remember when Cardano (ADA) switched to smart contracts last year? The speculation surrounding this momentous launch drove the price to a high it has never recovered from, notably at $3, more than double its current price. Heavy hype can push prices to unsustainable levels. We are already seeing media reports suggesting that the merger will be the solution to all of Ethereum’s problems, which is incorrect. The merger will solve some of Ethereum’s problems, but not all. It is possible that the reality of the merger will be disappointing, like Cardano’s smart contracts.
However, there are also reasons for optimism. A reduction in the amount of Ethereum in circulation will almost certainly be positive for its price. So do the staking opportunities. And some industry observers believe that the merger means more institutional investors will buy Ethereum, which will be positive for the crypto in the long run.
Conclusion
The long-awaited integration is an important milestone for Ethereum. In fact, as DeFi Llama shows that more than half of the money locked in DeFi applications is in the Ethereum network, the successful integration of Ethereum is important for the entire industry. But remember, this project has been around for years, and the merger is just one step in a much longer process.
As an investor, try to keep a long-term view instead of buying into the short-term hype. It is difficult to predict whether the price of Ethereum will reach a height that it cannot sustain in the coming months. But if you try to see the current evolution of Ethereum for five to ten years, you are less likely to be fried by the price frenzy.
Source: The Blog
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I am Ben Stock, a highly experienced news writer with several years of experience in the industry. I currently work for The News Dept as an author, where I specialize in market-related stories. My passion and expertise lies in providing readers with accurate and up-to-date information on the latest financial developments from around the world.