Ethereum is finally approaching its long-awaited transition from a proof of work to a proof of stake network. Earlier this summer the Ropsten Testnet finally transitioned to a Proof of Stake system. Now, with the successful transition of Goerli Testnet, the final stage is set for the Ethereum Merger. As per bankless, the merge could happen around 15-16 Sept 2022.
The Merger can bring the following to Ethereum:
- The price of ETH could cross $5k.
- Network Capacity from 15 TPS(Transactions Per Second) to 100,000 TPS. Possible usage of sharding which divides a network into multiple independent ones.
- Reduce gas fees to a fraction of the current cost.
- Reduce Ethereum’s energy consumption by 99.95%.
What will we gain?
The merge will basically make cheaper and faster transactions. With cheaper transactions, Ethereum will soon replace many other blockchains that are currently competing for domination.
- Retail Users: Cheaper and Faster Transactions.
- Developers: More audience to build for.
- Stakers: There is expected a 50% increase in staking rewards as per Ethereum.
- Web3 Business Owners: An increased public interest will help marketers like us to provide information to a greater public thereby ensuring good business for us,
Best Case Scenario
If the best-case scenario pans out, Ethereum will not only successfully increase its transaction capacity by 10 thousand times but also manage to make the gas fees very negligible.
The result of such an event would be:
- A high number of transactions using the Ethereum blockchain.
- Higher adoption of Dapps will occur due to the negligible gas fees.
- There will be increased liquidity due to greater trust in Ethereum’s security.]
- Negligible risk of systemic failure because it is one of the most collateralized cryptocurrencies.
- Ethereum-based tokens like Shiba Inu will also see an upsurge in usage and transaction capacity.
- A decisive blow to competition as Ethereum is a more trusted platform as compared to others.
- Since it is truly decentralized, there would be greater democratization and hence increased trust.
Keeping in mind the high potential of Ethereum, it can be said that the price of the ETH will eventually cross Bitcoin (provided that unsustainable levels of additional supply are not added).
What is The Merge?
The Merge is a transition that would convert Ethereum from a Proof of Work to a Proof of Stake blockchain. This would help ETH scale its network capacity by a factor of 10K from 10-15TPS to 100K TPS. Further, the Merger will also help reduce gas costs as more network capacity would be available.
The merger will also solve a problem which is essentially the accusation of consuming high energy. Ethereum claims that it will reduce its power consumption to 0.05% of its current levels.
Ethereum started as a proof of work cryptocurrency that people could mine on their PCs or Miners similar to Bitcoin. Basically, you would lend your CPU power to the Ethereum Blockchain(specifically EVM) which it would use to validate transactions. In return, you would receive some ETH as your reward.
Since this was like a one-time investment to mine ETH, a lot of people began to mine ETH in their backyards, garages, etc. Some even bought high-power miners to get as much reward as possible.
As a lot of people began to get involved as miners as well as regular users, Ethereum’s popularity grew. There were a lot of transactions happening on the blockchain which started to drive the gas costs higher.
NOTE: Gas cost is a transaction fee which changes with the level of the network congestion at any particular time.
What should you do?
Do not rush to buy.
The foremost urge inside anyone would be to invest a good sum of money. But that would be a mistake.
There are a lot of things that need to be in place before Ethereum prices skyrocket anytime soon. These things are:
- There has to be a renewed public interest in cryptocurrency. Markets need to recover at least to a new high.
- Major economies like India, Russia, and China are still very much against the concept of private cryptocurrencies.
- Almost all central banks including the Reserve Bank of India, China’s Central Bank, Bank of England, and many other institutions have voiced strong concerns regarding the financial stability of crypto.
- The Terra LUNA debacle is still fresh and has resulted in a loss of almost $60 Billion.
- Increased crypto hacks have to be contained before people put their money in cryptocurrencies.
Many of these things are currently not in favour such as the attitude of central banks. Once, most of them are aligned, it would be good to invest some money there.
Till then, I would suggest we do DOLLAR COST AVERAGING. which is buying small amounts whenever we get an opportunity.
The Ethereum Merge has resulted in euphoria in the cryptocurrency community and has contributed to a steep increase in ETH prices. However, we suggest investors remain cautious as the cryptocurrency markets are still in a recession phase and any potential gains might get ruined due to panic-driven selling.
Surely the merge brings forth a much better Ethereum with lower gas fees and faster transactions. All of these will eventually make Ethereum the most popular blockchain in due course of time.