The Merge and transition to Ethereum staking is one of the most widely anticipated crypto events to date. Following UNLOCK Blockchain’s report that explained the how and why, this piece will cover the effects of The Merge on Ethereum, along with analytical segments that answer every crypto enthusiast’s questions and thoughts.
Effects on Ethereum
Switching to a proof-of-stake (PoS) model is the new way to go. As mentioned in the first part of the report, it is less energy intensive, which addresses the concern that cryptocurrency is negatively affecting the environment. In addition to that, proof of stake is newer, seen as more advanced, and is more widely accepted by the industry.
This being said, The Merge will likely lead to a decrease in new ETH supply, leading to an increase in the interest in the Ethereum blockchain, based on the amount of ETH ready to stake.
The decrease in supply is an advantage for most Ethereum investors, said research analyst Christine Kim.
“Supply should contract rather than expand over time. And so I think that’s a huge boost to Ethereum’s investment narrative as a store of value and as a hedge against inflation,” she added.
DeFi investors are eager for The Merge to take place. In fact, there is now reportedly at least $31 billion worth of ETH deposited in the new Ethereum Consensus Model staking mechanism, ready to validate new transactions as soon as the light is green.
Nonetheless, even though many market members believe that The Merge will have a positive effect on the price of Ether, the very opposite may happen. Yes, The Merge will help Ethereum come closer to sharding, which will decrease the transaction fees, but it can also not go as planned, worsening the network’s condition and forcing users out of the platform, which could drag down the token as well.
Being on of the main milestones in Ethereum’s journey, The Merge comes with a few misconceptions, which include:
- Reduction in Gas Fees: The Merge will essentially switch Ethereum from a PoW to a PoS network, not focusing on its capacity.
- Faster Transaction Speed: There might be a slight change in the transaction speed, but it won’t be a specific focus of The Merge.
- Downtime of the Mainnet: The Merge will happen with zero downtime.
- 200% Increase in Staking APR: A 50% increase in APR is expected after The Merge.
- Withdrawal Will Be Open: Staking withdrawals will be open after the Shanghai upgrade, not The Merge.
Jeetu Kataria, CEO at DIFX, commented, “The merge will essentially transform the platform from a PoW blockchain to a PoS one. One of the main misconceptions about the Merge is that of reduced transaction fees and increased capacity. Even though we can expect a slight increase in transaction speed, the transaction fees may stay the same as they are the main focus of the upcoming sharding upgrade.”
Is now the time to buy Ethereum?
There is no doubt that the Ethereum blockchain has the largest number of developer apps in the crypto space. And despite the current crypto meltdown, Ethereum still handles the bulk of transactions for popular Web3 uses such as NFT trading and decentralized finance offerings.
Additionally, the Ethereum supply is steadily moving towards a deflationary level as more ETH coins are removed from circulation as an intentional offset to newly minted coins. Since the Ethereum Improvement Proposal (EIP)-1559 launched in August 2021, more than 2.51 million ETH have been burned, producing a net reduction in supply of 56.34%, according to WatchTheBurn.com.
While not financial advice, and keeping in mind that investors should always know their risk tolerances and conduct their own research, Ethereum is a top-tier digital asset that will successfully emerge from the current crypto winter – eventually. Investors who don’t take advantage of these current low entry points could regret it in the future.
Saqr Ereiqat, Co-Founder of the Crypto Oasis, explained, “At Crypto Oasis, we do not provide financial advice, at the same time, we truly believe in the long-term potential of blockchains such as Bitcoin and Ethereum to name a few.”
Investors and their ETH
The Ethereum website states that current ETH holders don’t need to do anything in light of the merge. You can get more involved in the upgrade through staking or helping to test the upgrades, but your holdings remain the same.
“It’s like a software upgrade,” says Doug Boneparth, financial advisor and president of Bone Fide Wealth.
September 19 – official or provisional date?
This remains the main question, as the upgrade is expected to happen on September 19. Nonetheless, no one is sure about it, but there was never really a set date before, making The Merge an “official event”. In fact, knowing that the difficulty bomb has been postponed five times since the protocol switch was announced, it plays a huge role when it comes to the date of The Merge. Once the date of the difficulty bomb is set, this indicates that The Merge is very close and could happen anytime.
Jeetu commented, “We can’t answer that question for sure, however, we can take the Beacon Chain as an example here. Even though many industry members doubted its timely launch, it managed to get the required minimum amount eventually, going live on December 1st, as planned. I think we just need to wait and see.”
Sharding: luxury or necessity?
Being the last and final phase of The Merge, sharding is definitely crucial at this point, as it will help the software platform in several ways, including bigger capacity (TPS), lower transaction fees and increased security.
Christian Borel, GM of SEBA Bank Abu Dhabi, mentioned, “Sharding is definitely a necessity, for the first two phases alone will not solve all the obvious problems. However, once done, Ethereum will be able to handle thousands of transactions per second – compared to the 7-15 transactions it can handle now – which will match it and put it on the same level with centralized payment processors like Visa.
Also, the Ethereum node could be run from a laptop or a phone, making it even more decentralized and secure.”
The Merge: a blessing or curse?
With this question in mind, it remains unclear whether the merge will be successful or not. Nonetheless, the whole industry is impatiently waiting for it to happen, because if all goes as planned, it will take Ethereum to new heights.
When asked about the matter, Saqr said, “If I’ve learned one thing, after being in this market for nearly a decade, it is that in the short term, no one can call the rise/fall, success, or failure of this technology.
Technology is ever-evolving, and blockchains such as Ethereum are not different. If we pause for a second we will have to see that the architecture of Ethereum as a Blockchain hasn’t evolved much in the last decade. The Merge has the promise to usher in a new chapter in the Ethereum story.”
Christian Borel, also commented, “Knowing that it can go both ways, I believe that The Merge will be successful, for it has been in the works for years, and as mentioned previously, there was never a date that was set for it. However, now that there is, this means that Ethereum is ready to adopt this new mechanism. After all, hundreds of thousands of people rely on Ethereum, so I do not think it would bury itself and its investors underground.”
To sum up, The Merge is undoubtedly one of the most anticipated moments in the history of cryptocurrencies, as one of the biggest and most significant protocols will go through a massive change. All of this became largely doable now that there’s a timeline in place, hoping that sharding, the last phase of The Merge, is completed in the nearest future possible.