The people who bought Ethereum are happier than usual. Ethereum developers have been celebrating as the Ethereum merge happened which is being called the most important technological upgrade in the history of cryptocurrencies. They discuss this on technical Zoom calls that happen every week.
But what is the “merge” itself? People who keep up with crypto news have probably heard about it and know that it means a change to proof of stake from proof of work for Ethereum.
EFFECTS OF ETHEREUM MERGE
A decrease in the production of new Ethereum
According to Lucas Outumuro, head of research at blockchain intelligence company IntoTheBlock, Ether will likely become “the greatest deflationary currency” following the merge. In his most recent newsletter, Outumuro says that the number of new Ether production will drop by about 87% because miners will no longer be given the currency. “ETH’s net issuance is now expected to be between -1.5% and 0.5% based on data from the last three months, compared to -4.5% to -0.5% based on data from Q1 to Q2,” he wrote on August 19.
A trickle-down effect on cryptocurrency mining as a whole
The outcome of the merge could affect not only the Ethereum blockchain but also a wide range of products and services that depend on it. Given how big and important Ethereum is, the outcome of the merge is likely to affect the whole crypto industry.
Thousands of people who mine Ether, many of whom have spent a lot of money on the graphic cards and mining hardware, will be affected by the switch to proof of stake. Most will probably start mining other proof-of-work coins, but the merge is still likely to hurt their bottom line.
Good things about cryptocurrency after the merge
Lastly, the merge will give investors more chances to put their ETH at risk and get rewards. For the proof-of-stake model to work, people who own Ethereum must tie up their coins to help keep the network safe. This is already being done by some investors on the parallel system.
Eth Staking after the Ethereum merge
After The Merge (the change from proof-of-work to proof-of-stake), the 13.3 million ETH that has been staked so far will start to unlock, giving their owners a chance to sell them. That’s about 11% of all the ETH that will be made available. But the doors will open slowly over the next 12 months.
Still, this could make some people want to sell their ETH because they want to make a profit or because they need money and need to sell their ETH. You can’t use the same fundamentals to figure out the value of a cryptocurrency as you can with, say, a stock. Because it’s hard to figure out how much something is worth, the crypto market is more likely to be affected by “Buy the rumor, sell the news.” Prices go up when people talk about something and then go down when it happens.
Ultimately, the merge is far from a slam dunk, and various issues may arise—like hiccups with clients or software verifying transactions, and application breakdown, among others—that are so complex they can be difficult to plan for. Bad actors might also try to sabotage the process as well. But Ethereum developers and engineers are working to be ready for any potential problems, and contend that they’re prepared.
The merge is a big step for Ethereum. At the moment, both chains exist at the same time. But only the Ethereum mainnet, which uses a method called “proof of work” to process transactions, is doing so at the moment.
Will Bitcoin be replaced by Ethereum?
Merge could be the chance for Ethereum to take over Bitcoin. The switch from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism could change ETH’s monetary policy and make ETH more scarce than BTC.
Vivek Raman, who works at ETH, said:
“After The Merge, the rate of inflation in Ethereum is lower than in Bitcoin. Ethereum will be deflationary because of fee burns, while Bitcoin will always be inflationary. Even so, the inflation rate goes down with every halving.”
Which step could be the most important?
The most important stage is the merge stage. After a successful merge, the proof of work will end for Ethereum cryptocurrency. It will be the end of Ethereum mining as well.