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Why Ethereum Merge Is Way Better Than Most Realise

The Token Playbook· 5 min read

Recently Ethereum migrated from being Proof of Work(PoW) to Proof of Stake(PoS). The event was named “The Merge”.

In this article, we’ll cover what will actually change in the Network and how price can be affected by it, short and long-term.

What Is The Merge Actually?

To start out let’s go a bit deeper into what the merge actually is.

Put simply The Merge was the fusion between the old and previously proof-of-work Ethereum Mainnet with a blockchain called Beacon Chain. After the event, Ethereum transitioned completely from a proof-of-work to a proof-of-stake consensus mechanism.

According to the Ethereum Foundation, The Merge will reduce energy usage in the network by 99.95%.

Ethereum Issuance Post-Merge

ETH issuance will also drastically change.

Previously Mining Rewards were around 13,000 ETH/day and Staking Rewards were around 1,600 ETH/day.

Now with The Merge, the Mining Rewards will be completely discontinued and only the staking rewards will go on.

It’s an enormous change in ETH’s overall issuance because the emission of Tokens will drop by 90% all of a sudden.

On top of that at least 1,600 ETH will be burned every day. If you add all of those together now Ethereum's net Inflation is essentially brought to zero.

This alone could be more than enough to justify a potential explosion in ETH’s price within the next 12 to 18 months. It could take a bit longer, who knows? It’s hard to predict the exact date. There are outside factors involved, like the Macro Economy, and unexpected events like wars, pandemics, etc.

But the key takeaway is: The issuance changes are so BIG it will be a surprise if they don’t drive significant price growth for Ethereum at some point.

It’s basic math. If supply decreases and demand stays around the same levels then the price has to go up.

Similar to what happened in previous Bitcoin Halvings, the pumps can take months, or maybe even more time to happen after massive supply modifications take place.

In this thread, @Jesseeckel talks about the supply shock on Ethereum and also uses examples of previous Bitcoin Halvings as a comparison. Definitely worth reading:

Additional reasons why Ethereum could be more attractive to investors(especially institutional) post-merge:

1. Not having to depend on the intense energy consumption of traditional mining will definitely make Ethereum more Eco-Friendly. Companies that stayed away from Crypto because of environmental reasons could now be looking at Ethereum as a green-friendly investment so to speak.

2. Ethereum usually outperforms Bitcoin in terms of percentage gains. Meaning investors looking for more profits can switch over to ETH, especially if the price starts pumping and draws more media attention. In a potential Bull Run that could easily be the case.

Keep in mind that the Economical Macro outlook is bearish right now. War, Inflation, and Interest Rate Hikes are some of the confluences that negatively impact the World Economy in general, so it makes sense that Ethereum isn’t pumping yet. The majority of the Risk Assets Market is red.

Misconceptions about The Merge

Nonetheless, Eth’s price not reacting positively to the Merge yet does not mean the Merge was unsuccessful or that price will not explode soon. Many looked at a price action post-merge and concluded that since it’s not going up yet then it’s because things didn’t work out well. That is not the case with Ethereum, The Merge implementations happened as expected.

Another misconception is: Gas fees aren’t significantly lower therefore The Merge was ineffective. It’s another mistake to assume that, The Merge was not supposed to lower Gas Fees instantly. In fact, it’s setting up the structure for this to be possible in the future with Ethereum 2.0 upgrades. As the blockchain is PoS now the implementation of technologies like sharding becomes possible and with it, positive changes regarding gas prices are intended to happen in the future.

Those are the main reasons why Ethereum can go through a massive upside in the next years. The upgrade of Ethereum is not finished and there are still important additions to come with Ethereum 2.0.

The Ethereum Network still has 4 more phases to go through, they are:

The Merge (finished)

The Surge

The Verge

The Purge

The Splurge

For more detail on those, @milesdeutscher wrote a great thread on Twitter:

Final Thoughts

There is much to come on the technological side of things and as the Ethereum blockchain expands more Builders and Developers also find a better platform to construct on.

Whether you are a developer or investor it’s definitely an ecosystem to keep an eye on as crypto evolves.

KEY TAKEAWAYS:

•With The Merge Ethereum migrated from Proof-of-Work to Proof-of-Stake Consensus Mechanism.

•It’s ok ETH’s Price is not pumping yet.

•Ethereum’s token issuance was DRASTICALLY modified after The Merge. Ethereum’s inflation was essentially brought to zero post-merge.

•Ethereum is now “Eco-friendly”.

•The Merge is not the final upgrade. It’s setting up the infrastructure for further substantial improvements in the future.

# Eth

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