Ethereum Merge Won’t Help Those Who Want to Make Quick Buck

Ethereum is moving closer to adopting a proof-of-stake model for its network, but you have to keep cool for better results.

The Ethereum Merge, a long-awaited upgrade that will complete Ethereum’s transition from a proof-of-work (PoW) to a proof-of-stake (PoS) system, is set to take place in September. In addition, The Merge will transform Ethereum’s monetary policy, making the network more environmentally sustainable and reducing ETH’s supply. Experts believe that after The Merge, Ethereum will have lower inflation than Bitcoin. Especially with fee burns, Ethereum will be deflationary while Bitcoin will always be inflationary. For Ethereum Classic, this merge provides a key catalyst, at least in terms of interest. Often looked at as Ethereum’s under-loved and under-respected sibling, Ethereum Classic is a fork of the Ethereum blockchain that came about as a result of an internal dispute among developers within the Ethereum team. Ethereum classic will remain proof-of-work, and as such, is now being viewed as a haven of sorts for Ethereum miners looking to pivot.

The Merge, the first of five planned upgrades for the network, may increase transaction speeds by only 10% by reducing block times, according to the report. The upgrade, however, lays the path for the “Surge,” which is the next planned upgrade for the network and promises to bring 100,000 transactions-per-second (TPS) capability to the blockchain, the report added. The Merge means that block time will drop to 12 seconds from 13, and that could result in a small decrease in fees and an increase in speed, the note said. Citi says switching from PoW will reduce overall issuance of ether by 4.2% a year, and with ether (ETH) eventually becoming deflationary, this may improve the case for the token as a store of value.


From proof of work (PoW) to proof of stake (PoS)

Ethereum’s Merge will change the underlying way the network secures itself from proof of work (PoW) to proof of stake (PoS). This is important since PoW follows a similar mechanism as Bitcoin, where power-hungry computers on the network compete with one another to validate and secure transactions. While secure, PoW is energy-intensive since miners — specialized network nodes that seek to be rewarded newly minted coins, which serve as payment for confirming transactions — spend electricity on duplicative processes, and invalid blocks submitted are penalized via sunk computing power and energy. The network has a comparable carbon footprint to many small nation-states, according to ConsenSys, a blockchain software technology company founded by Ethereum co-founder Joseph Lubin. Additionally, as each validator competes, the network becomes congested, which results in high gas fees.

The move to PoS turns ETH into a “yield-bearing asset” with cash flows, the bank said, which may be interpreted as a form of revenue for the network. Having potential cash flows would allow the use of a range of valuation methods that aren’t available for the blockchain now, the bank added. Because Ethereum will be both yield-bearing and deflationary, it is less likely to be the blockchain with the highest throughput. Given its “enhanced store-of-value properties,” it is more likely to be where a growing amount of total value locked is secured and transacted, the note said. Post-Merge ETH could be viewed as a relatively energy-efficient and environmentally friendly crypto asset, as energy expenditure is expected to decrease by 99.95%, the note added.