The Ethereum merge is upon us. Sometime later this year, Ethereum will make its final move towards the new Proof of Stake (PoS) version. All of the crypto space is anxiously anticipating this event, especially because it might mean for the Ethereum ecosystem.
The Merge Demystified
The ETH Merge is an event where the current Ethereum mainnet as we know it merges with the Beacon chain of the proof-of-stake system. In a way, the latter will absorb the former out of existence. According to the Ethereum Foundation, the merger will reduce the energy Ethereum consumes by about 99.95%.
The merge has been slated for somewhere between Q3 and Q4 2022. While the dates are not clear, it is evident the event will not go beyond this year. It is important to note that the Beacon chain has been running parallel to the Ethereum mainnet for over 18 months. It was launched in December 2020.
A blog post on the Ethereum foundation website gives a nice analogy to explain the merge without all the technical jargon,
“Imagine Ethereum is a spaceship that isn’t quite ready for an interstellar voyage. With the Beacon Chain, the community has built a new engine and a hardened hull. After significant testing, it’s almost time to hot-swap the new engine for the old mid-flight. This will merge the new, more efficient engine into the existing ship, ready to put in some serious lightyears and take on the universe.” – Ethereum Foundation Blog
Chase Devens, an Analyst at Messari Research says that in the history of blockchain, there has never been a change of this magnitude.
Possible Effects of the Merge
Holders/Investors
The merge will cause a large amount of ETH tokens to be burnt, causing the value of Ethereum to rise significantly. With staking, no new coins are introduced into the ecosystem; hence, the coin issuance will drop by 90%.
Stakers
Currently, the total amount of Ethereum staked is a little over 13,000,000. In the future, this number will increase. This will lead to a reduction in the total circulating supply of ETH while its demand continues to increase. Such a scenario will lead to an increase in price as staker makes a nice 10-15% APY on their staked ETH.
Developers
The merge is expected to disrupt the DeFI ecosystem in a big way. Compared to Ethereum’s scale of operations, other chains like Polygon, Solana, and Cardano look like dwarves. The cost of using Ethereum will become more economical, and transaction speeds will rapidly improve.
Final Thought
It is upon these possible effects that the idea of an upcoming power shift between Bitcoin and Ethereum stems. Suddenly becoming a deflationary asset, put Ethereum in Bitcoin’s backyard. However, Ethereum has astronomically more use cases than Bitcoin, and many anticipate that the merge will be the final catalyst for ‘The Flippening”.
