Implications of the Merge

The Ethereum Merge is generating a lot of buzz. However, despite the excitement around the big update, the Merge won’t immediately fix the chain's most pressing usability issues by itself.

The Merge involves joining Ethereum's execution layer (the mainnet used today) with its Proof-of-Stake (PoS) consensus layer, the Beacon Chain. Using staked ETH instead of energy-intensive mining eliminates the need for energy-intensive mining. Tim Beiko, the AllCoreDevs lead at Ethereum Foundation, discussed the implications of the transition to PoS in the latest podcast hosted by Alex Kehaya. 

“There are a couple of reasons why we want Proof-of-Stake, one is the huge environmental impact of PoW, so ETH contributes a ton of CO2 emissions using PoW,” Beiko revealed. “The second big motivation is that PoS gives us more granular control over network security. What I mean by that is in proof-of-work, you can't really discriminate between miners on the chain.”

However, most long-term improvements to Ethereum's usability will come from its ecosystem, not from updates to the Ethereum network. The founder of Deso Protocol, Nader Al-Naji, recently explained via Twitter that Ethereum’s block size remains the same, thus maintaining the high fees and congestion. While the Ethereum team has plans to fix this, it's not “obviously that important.” Why? Nader has an answer:

In other words, The Merge won’t immediately resolve the primary issues that have allowed faster and cheaper blockchains like Solana to steal some of the limelight from Ethereum.

“Proof-of-Stake doesn't scale Ethereum, but having all these valid infrastructures that come to a consensus about a bunch of things allows [sic] to then deploy other upgrades like sharding which do scale the network, which is really a good architecture,” Beiko continued.

The purpose of sharding is to increase transaction throughput and reduce fees by splitting the network into pieces. But sharding isn't coming anytime soon. In order to accelerate the shift to PoS, Sharding was delayed until after the Merge and is expected to be implemented sometime in 2023. 

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Changing Landscape for Investors

As a result of the Merge, Ethereum miners will be forced out of business in favor of stakeholders, causing the release of new ETH coins to be much slower than they are at present. Also included in the upgrade is a process called "burning," which involves removing coins from circulation. As a result of the burning, the network will be under deflationary pressure, causing token prices to rise.

In addition, there has been talking of a "double halving" or "triple halving" change in the minting process.  As a result, Ethereum supply will be limited because fewer coins will be produced per validation. 

Despite this, many investors remain concerned that The Merge may not take place on time. Even with the successful testnet run, Ethereum's transition to PoS has been delayed multiple times. It's also unclear how investors and companies who've built technology on the existing blockchain will respond to the changes. 

Still, many bullish analysts predict that ether could end this year between $4,000-$4,500. If enough investors join the bull train, ETH could recover more of its lost gains in the coming months.

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What is Ethereum:

Ethereum is an open-source, distributed computing platform based on blockchain technology that can execute smart contracts - that is, the terms written in the contract will be executed transparently, automatically when the previous conditions are satisfied, and no one can interfere. At the same time, Ethereum also allows developers to build decentralized applications (dApps) and decentralized autonomous organizations (DAO).

Find more about Ethereum here:

Website | Twitter | Documentation | Whitepaper | Reddit | Discord | Youtube | GitHub | Ethereum Foundation Blog |

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