They believe this will pave the path towards ‘the flippening’ – when Ethereum overtakes Bitcoin as the largest cryptocurrency by market capitalisation. September is here, and the Merge is just weeks away. Let’s understand the event in detail and prophesize what’s ahead.
What is the Merge?
The Merge is the transition of Ethereum (ETH) blockchain to the Proof-of-Stake (PoS) consensus mechanism. This shift was planned at the inception of the blockchain in 2014 itself. PoS is energy-efficient, and the Merge will instantly cut 99 per cent of Ethereum’s carbon emissions, according to the Ethereum Foundation.
This will make ETH a strong candidate for institutional investors like Tesla who have stayed away from Bitcoin (BTC) on concerns about its energy use. It will also have implications on the tokenomics of ETH. The Merge will result in a 90 per cent net drop in the annual issuance of ETH.
This means that, over time, ETH’s supply will remain stable (or even decrease; making ETH deflationary) giving a fillip to its investors. All retail investors will also be able to stake their ETH for passive rewards once the Merge is successful.
However, this step will not solve transaction speeds or drastically improve the volume of transactions on the blockchain. To address scalability, there are four additional steps in the roadmap of Ethereum (Surge, Verge, Purge & Splurge) once the Merge is complete.
The above scenario, if played out well, can lead to ETH gaining on BTC over the medium term and eventually hitting the ratio of 0.17 and above that, which will lead to ‘the flippening’. Ethereum will then be the most sought-after crypto asset in the world.
It’s all rosy but short-term effects need to be negotiated
Current Ethereum miners who invested in hardware and their efforts to successfully run the blockchain over the years are naturally unhappy. There are calls for the creation of a new fork that will retain the PoW mechanism of the blockchain. This will be similar to Ethereum Classic which split from Ethereum’s main chain in 2016 and continues to be a top 20 cryptocurrency.
There is also a small chance that the Merge may get delayed or unsuccessful, given the vast changes expected in the ecosystem. Thus, in the short term, the Merge may lead to high volatility in ETH prices depending on its success and outcomes.
Investors must be patient and benefit in the long term.
The Merge is an automatic process. Investors should only hold Ethereum on a wallet or exchange that supports the Merge and any new forks for them to come out unscat
All coins will be automatically transferred to the new blockchain, while any new forked coins will also be issued to the investor. NFT holders on Ethereum are, meanwhile, encouraged to hold their NFTs in private wallets.
Indeed, it will be a memorable September if the Merge is successful. While ETH and crypto may not be immune from the macro-economic conditions globally, they will at least be on a path to sustainably grow and scale over the future. The Merge may be the starting point of this adoption curve.
(Vikram Subburaj is the CEO of Giottus Crypto Platform)