The biggest event of this year called The Merge took place on Ethereum today. Thanks to this, Ethereum has newly become a Proof of Stake blockchain, which entails, for example, a significant reduction in electricity consumption. But what else can we look forward to in the context of Merge and what can follow it both from the point of view of technology and price? We will focus on this in today’s article.
The Merge on Ethereum
Merge represents the merger of the original Proof of Work Ethereum blockchain with the so-called Beacon chain, i.e. the new Proof of Stake blockchain. For the time being, it only ran with highly limited functionality, which included, for example, the possibility of staking. During the Merge, the old Proof of Work blockchain was followed by the new Proof of Stake blockchain, which is its only current continuation. It is also the first of the main steps of the transition to Ethereum 2.0, i.e. a scalable blockchain using Proof of Stake (the label ETH 2.0 can already be slightly misleading, since the ETH 1.0 Proof of Work blockchain has disappeared today).
But Merge by itself does not bring an increase in the scalability of the Ethereum blockchain. We will have to wait for that until the future implementation of sharding and other innovations. Also, it is not yet possible to unlock staked ethers, this option will only be added with the Shanghai upgrade, which we will see in the next 6-12 months or so. Nothing changes in practice for the end user.
Advantages and Disadvantages of Ethereum Merge
The main advantage is mainly considered by the wider public to reduce the burden on the environment. Here we are talking about up to 99.95% reduction in electricity consumption when securing the Ethereum infrastructure. But what you will read about less often, and may be even more important, is the evolution of the total number of ETH coins. Since Merge, Ethereum is a deflationary currency for the time being. If Ethereum’s popularity remains at least the same, deflation is expected to continue.
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On the contrary, among the disadvantages, we must mention the lower verification of the Proof of Stake consensus mechanism. The latter is generally considered less secure and more prone to centralization. This is also underlined by the statistics of stakers. Up to 60% of staked ethers are managed by just 4 entities.
However, Merge is generally considered a positive fundamental, but this has not been reflected in the price. People have simply known about the news for a long time, and we could see sell-offs fueled by people holding ETH just for potential forks and airdrops, or people expecting the merge to trigger growth. Even though in the long term Merge is certainly a hugely important event that can become an interesting precedent for alternative Proof of Work cryptocurrencies (beyond Bitcoin, of course), we do not consider it likely to disrupt the downward trend based on it.
The opinions and opinions expressed in this article are published for informational purposes only and are in no way impossible to perceive as investment advice. No content on Kryptonovinky.sk and Kryptonovinky.com can be considered as financial, investment or other advice. Please note that investing in cryptocurrencies can lead to losses.