WHAT IS THE ETHEREUM MERGE
Ethereum is one of the largest and most popular cryptocurrencies in the crypto space and was the first to inaugurate the smart contract. But this network hasl its shortcomings which include its heavy congestion, the high gas fee and its high power consumption due to its high computerization. As a means of providing a lasting solution to this problem, The Ethereum Merge comes in.
The Merger is the switch from Ethereum’s proof-of-work validation model to a proof-of-stake validation model. Currently, ETH is secured by a mainnet that runs parallel to the proof-of-work. But this merger will see a transition from this to beacon chain which runs parallel to the proof-of-stake.
The major difference between the proof-of-work and the proof-of-stake is that the proof-of-stake makes use of miners who are selected randomly to validate transactions while proof-of-work on the other hand makes use of a validation method to confirm transactions. These validation methods are very competitive. Also, the proof-of-stake is faster than the proof-of-work.
In the merger, the ability to run smart contracts by mainnet will be incorporated into the proof-of-stake system alongside ETH’s history and its current status at the time of the merge. With this merger, mining would be obsolete as miners would have to invest their assets into the proof-of-stake system and validators will also be entrusted to validate Ethereum’s mainnet.
ITS POSSIBLE EFFECT ON THE CRYPTO MARKET
Ethereum is the second-largest cryptocurrency and its upgrade will certainly ripple through the spine of the crypto space and consequently affect its value and the crypto market at large.
Ethereum’s merger may lead to a significant increase in its price. The switch to the proof-of-stake will enable Ethereum’s protocol to lower its block reward significantly while at the same time remunerating validators properly. The proof-of-stake will reduce the amount of Ethereum tokens being minted daily to 2,000 from 13,000 and make Ethereum a deflationary currency. With this, supply decreases and demand skyrockets. This in turn should lead to the increase of Ethereum’s value according to the laws of demand and supply, when demand stays constant and supply is limited. Mark Cuban also confirms the fact that Ethereum becoming a deflationary currency would lead to its possible bullish move.
Secondly, when the value of Ethereum increases, altcoins built on Ethereum’s network will also increase in value. Over the years, with the recurring trend of the crypto market, the prices of altcoins are determined by the price of the network they are based on. Hence, the increase in the price of Ethereum will increase the price of other altcoins based on the ERC20 network which is Ethererum’s. Some of these altcoins are; ChainLink (LINK), Shiba Inu(SHIB), Wrapped Bitcoin (WBTC), OmiseGO (OMG) and 0x(ZRX).
In addition, when these two happen, the bullish movement might in turn influence other coins based on other networks and spawn them into making their bullish move. These are just the possible effects based on facts and figures emerging from the merger as nothing is 100% certain in the crypto market.
Conclusively, it is important to assert the fact that the merger is yet to happen but it’s imminent. The ongoing kiln test confirms this. And after the kiln test, the merger will take place officially.
Again, when the merger takes place, the emergence of its new consensus mechanism will be a major milestone in the journey to kick start Ethereum 2.0 which has been in the embryonic stage. The inception of Ethereum 2.0 does not mean there would be another token. The same tokens will be in use since the ability to run smart contracts by mainnet alongside ETH’s history and its current status will be incorporated into the proof-of-stake system. This is debunking the news that has been circulated by scammers that a new token called “ETH2” will be formed after the merger.
Also, the merger will not solve the problem of high gas fees. This problem is scheduled to be solved in a few years by the shard chain upgrade. This merger will solve both the problem of heavy congestion and high power consumption while shard chain will solve that of high gas fees.
