The Ethereum Merge has finally happened successfully! The crypto community, now more than ever, is wondering what its effect on the industry will be.
Ethereum’s Merge just hours away
This is it, finally the long-awaited launch of the new Merge update, whose development by the Ethereum foundation had started in December 2020, will finally be up and running on the Ethereum network, which will be transformed into a Proof of Stake network that is more sustainable and cheaper than the previous Proof of Work network.
Many analysts and experts in the field are wondering what the effect or effects this upgrade may have, and especially the magnitude of it, not only on the price of Ethereum (which now seems quite obvious) but also on the functionality of the blockchain itself and also on the entire cryptocurrency and Web3 ecosystem, which still deploys about 70% of the market on the blockchain network.
The potential effects
Daniel Dizon, founder and CEO of Swell Network, an unlicensed liquid ETH staking protocol that has been built for stakers, node operators and the Ethereum ecosystem, has made a very detailed and precise analysis in recent days about what precisely the effects of the Merge may be both on Ethereum itself and especially on the crypto market in general.
The first aspect he mentions is that of the price trend of Ethereum is clearly outperforming the market, affected especially by the problems of very high inflation, which the Fed is finding increasingly difficult to counter, despite two consecutive 0.75 % interest rate hikes.
“Notwithstanding headline inflation running in hot in Tuesday’s CPI, ETH’s price continued to hold relatively steady against the broader market decline, led by the anticipated Merge event. We expect this decoupling move to continue in the near term as investors digest the long-term implications of the Merge such as improved energy efficiency, the rise of the staking economy, and ETH becoming potentially deflationary.”
Thus, Ethereum’s price is evidently just buoyed by this new update, which could, as argued by another leading analyst, Stefan Rust, CEO of blockchain development house Laguna Labs, drive the asset to touch $3,000 by the end of the year.
The effects of the Merge on the ecosystem
The effects will also be huge on staking, as is already being evidenced by the lucrative deals that major exchanges, starting with Binance and Coinbase, are offering for this type of activity. This could attract many institutional investors to the possibility of investing in cryptocurrencies directly with a relatively safe and liquid product.
In March, staking service provider, Saked, introduced a staked ETH trust with the goal of achieving an 8% return, while Binance offers a return on its ETH staking product of 6%. In June, Switzerland-based Sygnum Bank introduced institutional staking services for its clients. and according to some rumors it seems that a wall Street giant like Goldman Sachs is also entering the market.
But the new Ethereum will also become a driver for the new Web3 and metaverse ecosystem, according to Dizon’s view:
“The Merge will be a boon to the Web3 ecosystem, by making it much easier to build and develop projects on-chain. Ethereum’s merge will lead the way for other blockchains to also review and assess how their own chains are run, and create a blueprint for building projects with greater scalability and decentralisation.”
On the other hand, the new update in addition to being more sustainable, with 99.9% less power consumption than the previous version should over time become much faster and go from just over 15 transactions per second to about 100,000, making the blockchain faster than its new rivals such as Solana and Avalanche, which not surprisingly are among the assets that are losing the most in the market in the past two months.
How will Ethereum’s adoption change
Ethereum could increase its adoption and usability, something that Bitcoin and many other cryptocurrencies are currently struggling to find.
Dizon, and like him many other cryptocurrency blockchain experts seem to think so, argues:
“Ethereum will have carved out an important space for its token with the change to its consensus mechanism. Crypto investors will still continue to see BTC as a form of “digital gold” but ETH will actually have much more utility in becoming the building block for Web3.”
However, there are also negatives according to some. The Merge will surely revolutionize the Ethereum blockchain and probably the digital asset industry itself over time, and this includes the fact that the network would become more centralized and perhaps less secure, considering that the validation process will be entrusted to those who own Ether and the process could also have issues, at least at the beginning due to the absence of the incentive of mining.
Not to mention that many would argue that this system would make the likelihood of hacker attacks certainly more difficult to implement than Proof of Work, but also far more far-reaching and dangerous once it is brought to fruition.
Finally, according to some, such as Bryan Daugherty, director of global public policy for the BSV Blockchain Association, the new form of blockchain network validation that will eliminate mining, could create bias among large ETH holders, who will clearly have much more decision-making power, compared to other users.
Under the new method, to become a validator on Ethereum, someone must invest at least 32 ETH (about $52,000) and agree to keep those tokens hidden in a separate account.
“The way I look at this is the plan now is to eliminate mining overall and award these coins to those with the biggest positions.”