The Merge May Rocket Ethereum Higher!
The Ethereum merge is upon us, which is exciting news for Ethereum holders, as it is one step closer to moving from proof of work to proof of stake. And the latest news is that the kiln Testnet was a success, which means the actual merge may happen in Q2! I do want to go into the details of this news, deep-dive the roadmap a little bit more, and the implications for those that are mining Ethereum, as well as those that are holding.
We know that the beacon chain was launched last year and the Kiln Testnet was basically created in order to make sure that the merge when it happens, goes without any issues, this merge actually did happen last week (3/15). The testnet is now entirely running under proof of stake, while the mainnet remains using proof of work. Right now when you send ether, it’s all being done and settled on the mainnet. Whereas these testsnets allow for developers to experiment and make sure that there are no bugs and that Ethereum doesn’t blow up during the actual merge. The original roadmap on ethereum.org has the merge happening in 2022. We got some confirmation that that Q2 of 2022 is a good ballpark range, because we had some developers come out and propose that the difficulty bomb delay would be moved to June, 2022.
The difficulty bomb would make it so the current Ether miners are no longer making money, so they are incentivized to move away from Ethereum mining (proof of work) and just go to another cryptocurrency with their hash rate. If you’re still not sure what the merge would look like this visual may help.
You have the Ethereum main net and its history with proof of work (the current protocol? And you have the beacon chain and proof of stake in parallel. And during the merge, you simply take all the history of Ethereum and put it on the proof of stake chain, and going forward, you have proof of stake only. There will only be one main net, if there is a split of proof of work Ethereum versus proof of stake Ethereum, the proof of stake version is the mainnet.
The good news is if you own Ether, you don’t have to do anything. If you have it on a centralized exchange or wallet, doesn’t matter, the protocol itself is changing, but you don’t have to do anything specific with your own ether.
If you’re one of those holders that staked your ether for ether 2.0 after the merge, you still have to wait a little bit in order to withdraw anything on ethereum.org. They basically say that there needs to be a little bit of a clean up and they’ll introduce features to allow stakers to actually withdraw those funds eventually.
Once the merge is complete, the next set of upgrades for Ethereum 2.0 would be shard chain, which isn’t supposed to happen until 2023.
Let’s talk about what I think this does for Ethereum’s price. Ethereum is currently priced at $3,000 and the all-time high for Ethereum is around $4,700. That was back when risk assets, where all the hype and everything was hunky-dory, but we know how risk assets have performed in 2022. That’s all right, though, I think going into the merge, there’ll be probably more speculation. And I think going into the merge we’ll get even more speculation and a bump in price. I’m very bullish long-term on Ethereum (on the demand side).
What you also have going on for Ethereum is the fact that the issuance of ETH will actually go down. Once proof of stake is implemented. It’s estimated for an annual inflation rate to go from 4.3% to around 0.43%. Similar to the inflation that we’re dealing with right now with the US dollar. You have the same thing with cryptocurrencies where they’re issuing new crypto to those that are mining or staking, and this increases the supply. If you lower the issuance i, there’s not as much Ethereum being introduced into the supply side and another reason the price of Ethereum can go higher (as less demand is required to push the price higher).
What’s even crazier is the implementation of EIP-1559, which introduced a fee burn for the people that are mining. There’s a base fee as well as an amount that goes to the miner itself. Those base fees are getting burned. And since the launch of that EIP, around $5 billion of ether has been burned, which is an insane amount! When you factor in ether that’s being burned, Ethereum will actually become deflationary. All things equal if Ethereum is deflationary and there’s no change in demand, then the price will go up for Ethereum.
On top of all the good news around the price, you also have the Ethereum blockchain moving towards something that’s more scalable, more secure, and more sustainable, which is all great news as well. Hopefully, with the move to proof of stake, transaction fees continue to come down as well.
The real question becomes if the Q2 target is realistic, as there has been a history of the roadmap being pushed off or delayed a little bit. And we’ve seen it so many times that that’s a running joke.
While there is no definitive date, the merge is definitely coming up on the horizon. And it is something you should be excited about if you own ether!
This article was generated from the following Youtube Video: