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The transition of the Ethereum blockchain from proof-of-work to proof-of-stake will be one of the most remarkable developments since the inception of the blockchain. With the historic merge set to occur in the coming weeks, crypto community members are excitedly bubbling. But what exactly is the Ethereum merge, and what can we expect of it?
What is the Ethereum Merge?
The Ethereum merge will harmonize the Ethereum mainnet with the beacon chain. Currently, ETH’s mainnet runs on the proof-of-work consensus mechanism. The Ethereum network developed and launched the beacon chain late in 2020 as part of the steps towards the transition.
The merge, set to take place in September 2022, will mark the end of the proof-of-work validation model on the Ethereum network. Ethereum will no longer utilize two different validation systems running independently.
The ETH merge will lay a foundation for future scaling solutions. Although the Ethereum merge will change the blockchain’s consensus mechanism, the network capacity will not be expanded just yet. While many anticipate faster transactions upon the mainnet merge, that will sadly not happen until Ethereum implements sharding in 2023.
The implementation of sharding to the Ethereum network has been tagged as “The Surge.” Sharding will help the Ethereum blockchain process many more transactions simultaneously.
Further, Ethereum will be working on “The Verge.” With the aid of verkle trees, Ethereum’s node size can be reduced, and blockchain users can enjoy better storage on the network.
Five Benefits of the Ethereum Merge
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The Merge Will Decrease Energy Consumption: Here’s a fun fact. The amount of energy required to validate a transaction on the Ethereum network could power an average household in the United States for six days. Interestingly, the amount of energy expended in Ether mining in a year surpasses that consumed by Italy as a whole.
Ethereum miners expend so much energy in mining, which has been a cause for concern in the last few years. Ethereum’s transition from proof-of-work to proof-of-stake will reduce energy consumption by a whopping 99.95%. This will suppress environmental depletion and contribute to a greener earth.
Ethereum’s POW validation model has also hindered the network from implementing advanced blockchain scaling solutions. The merge or transition will make it possible for the blockchain network to implement sharding in the future.
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Improved Network Security: The ETH merge will boost the network’s security. Although several blockchain experts have argued against this, Vitalik Buterin’s paper published in November 2020 proves that the transition is a solid step in the right direction. The Ethereum co-founder explicitly stated why Ethereum’s transition to POS will make the network more secure.
The proof-of-work validation model the network currently uses can be broken with a 51% attack. Overcoming 51% of other miners on the network will cost far less with Ethereum using the POW model. However, achieving a 51% attack is much more expensive and practically impossible with a POS model.
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Increase in Staking Yield for Ethereum: A transition to proof-of-stake will increase the staking yield of Ether (ETH) for investors. Over 10% of Ethereum’s total supply has already been staked in anticipation of ETH 2.0.
When the merge is complete, ETH stakers will earn higher yields than we have today. According to Ethereum.org, staking APR is expected to increase to 50% after the merge.
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ETH will become Deflationary: In August 2021, the implementation of the EIP-1559 upgrade introduced burning to the network. A base fee is burned for every ETH transaction, removing a fraction of Ethereum from circulation forever.
This framework will further be improved when the blockchain completes its historic transition. ETH currently has a 4% annual issuance rate which is expected to be suppressed to 0.9% when the merge has been completed.
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The Merge will Diffuse Selling Pressure for Ether: It is typical for miners to sell off their tokens to cover mining costs. ETH miners are estimated to sell off $14 billion worth of Ether tokens annually. With the eradication of miners from the network, this selling pressure will be wiped off.
The network will now support stakers, whose goals are opposite the miners’ goals – Staking/holding. Additionally, with the Ethereum staking yield increasing after the merge, more users will want to lock their assets rather than sell them off.
Will The Ethereum Merge Lead to an Increase in the Price of Ether?
Ethereum protagonists are 101% certain that the merge and further upgrades will increase Ethereum’s value. Notably, completing the merge will lead to the release of millions of staked ETH. Some analysts have claimed that unstaking these tokens will lead to a sell-off.
But what will actually happen? Will there be a massive sell-off as a few crypto holders project? Staked Ether will be unlocked in batches, preventing a sudden sell-off. More so, most users who staked Ethereum for the launch of ETH 2.0 are firm believers in the project, willing to hold on to Ethereum for years.
It is unlikely that Ethereum stakers will panic and sell their highly-priced assets, especially considering the numerous use cases of Ether. While a collection of factors will determine the future price of ETH, the merge has more benefits to Ethereum’s future value than disadvantages.
The Fate of Ethereum Scaling Solutions after the Merge
Ethereum scaling solutions like Polygon and Optimism will be more instrumental once the merge is complete. Since the September merge will not be improving the speed and scalability of the network yet, these blockchain protocols will be widely used to achieve high throughput.
Interestingly, in 2023 and beyond, when Ethereum is finally scaled with sharding implementation, layer two scaling solutions will still play a vital role in the blockchain space. Blockchain adoption has rapidly surged in the last ten years and will continue to soar in the coming years.
With more internet users adopting a decentralized web, we can project an increase in the use of the Ethereum blockchain. Layer two scaling solutions will be used alongside the Ethereum network, improving the blockchain user experience. The ecosystem will have enough room for both layer one and two chains to thrive.
When Ethereum’s roadmap has been fully implemented, the network will be able to handle 100,000 transactions every second. Blockchain users cannot wait to see Ethereum, alongside its scaling solutions, miles ahead of their current stage soon.
Author Bio
Efe is a web3 content writer with over six years of writing experience. He has spent the last three years creating content for various crypto and blockchain platforms. With his skills and experience, he has expertly worked as an editor, journalist, technical writer, and social media content creator. His goal as a writer is to make it easy for anyone, including kids, to learn about cryptocurrencies and web3. LinkedIn:Â https://www.linkedin.com/in/efe-bravo
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