Harder, better, faster, stronger Is this a quote from a Kanye West song? Or will this reflect Ethereum’s improvements after the merge to ETH 2.0? What excites me most about this historic event isn’t exactly the moment when the mainnet unites with the Beacon Chain. What excites me the most are the implications for the future of crypto. Besides Ethereum improving privacy, speed, scalability, security, etc., this event will declare a true winner in the faceoff between proof-of-work and proof-of-stake and ultimately which coin will sit at the top of crypto’s Iron Throne. Despite the delays, the long-awaited merge from ETH to ETH 2.0 is going to be the dawn of a new era. Over two years ago, Vitalik laid out the detailed groundwork on what it would take to get to ETH 2.0 and beyond.
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Lucky for us, it didn’t take him 5-10 years to do it. It’s without question that Vitalik saw the writing on the wall with proof-of-work. And for him to switch ETH over to proof-of-stake, the only thing he had to do was change everything. Imagine creating a business, not only that, a business that works and is the second most successful business in the industry, and then deciding to change every single aspect about it from the ground up to create a faster, more secure, sustainable future. In the words of Kanye West, “Name one genius that ain’t crazy.” Let’s get it! In this video, we’re going to talk about the merge from ETH to ETH 2.0, what this means for the future of Ethereum, and will this major event in crypto’s history lead to a flippening? Will this merge eventually be the catalyst that makes Bitcoin the altcoin?
Let’s find out. Much like Vitalik’s ever-complicated roadmap, let’s start from the ground floor and discuss what this merge is, when it’s happening and why it’s so important. As of right now, Ethereum’s mainnet, just like Bitcoin, runs on a proof-of-work consensus mechanism. This is when transactions on the blockchain are verified by the processing power on a miner’s computer that’s solving highly complex mathematical puzzles. The miners are then rewarded in block rewards with the network’s native currency by solving these puzzles and verifying transactions. It’s called proof-of-work because it requires an enormous amount of processing power and it leaves a large carbon footprint.
On the flip side, for proof-of-stake, instead of miners, the users can stake the network’s native crypto and become a validator. Similar to miners, the validators then verify transactions and make sure nothing fraudulent is happening on the network. They are then rewarded based off how much crypto they staked and the duration of time they staked it for. Proof-of-stake is so attractive to Ethereum for an array of reasons. In today’s day and age, people will usually side with what works the fastest. The way ETH runs right now, it can only handle 30 transactions per second. After the merge, it will be able to handle 100,000 transactions per second! Mind-blowing! Probably the most important aspect of this merge will be the massive reduction in Ethereum’s carbon footprint. We all know that environmental concerns have been a huge criticism of Bitcoin since it requires so much energy running on proof-of-work. Earlier this month, 23 Democrats signed a letter to the EPA complaining that Bitcoin is using too much energy and needs to switch over to proof-of-stake. As misleading and factually incorrect as this letter was, the fact Ethereum is switching over makes it much more likely that ETH will be in the good graces of the government and consequently the good graces of institutional investors.
CEO of crypto wallet NGRAVE Ruben Merre stated, “The Beacon Chain introduced staking but didn’t change how Ethereum fundamentally works. That all changes in 2022 when it merges with the mainnet, making the significant consensus change, reducing energy consumption by 99.95% and eliminating a carbon footprint the size of Finland.” So, where are we in the roadmap to ETH 2.0 now? On December 1, 2020, the Beacon Chain introduced staking to Ethereum and ETH 2.0 will be live when the mainnet merges with the Beacon Chain. Since then, there’s been an array of upgrades that have been inching us closer to the end goal. But there’s still work to be done. Just last month, the ETH devs ran a first major test known as the shadow fork, which acted as a test run for its transition to proof-of-stake. They do this to find issues with the transition so when the real merge happens, it goes over seamlessly.
So far, they’ve ran the shadow fork three times. Yeah, they hit a few small bugs with gas limits being raised and things like that, but there’s more good than bad to take away from these tests. And they’ve gotten better every time they run it. Practice makes perfect. And the job they’re doing isn’t as simple as downloading a song on iTunes. The responsibility is paramount. There’s a lot of pressure on their backs to make sure this goes perfectly. Ethereum core developer Tim Beiko stated, “Ethereum has never gone down or stopped. It was critical when we designed the merge that we have this hand-off process from PoW to PoS happen without any downtime on the network.” To me, it doesn’t exactly matter how long it takes for them to get this down as long as it’s perfect when the merge happens, which is expected to come in Quarter 3 or Quarter 4 of this year.
Tim Beiko stated last month, “No firm date yet, but we’re definitely in the final chapter of PoW on Ethereum.” If you’re wondering about gas fees, it’s a misconception that the merge to ETH 2.0 is going to make a significant impact on bringing them down. It’s a cat-and-mouse game trying to lower gas fees because more and more users will keep onboarding as they scale for the current workload, causing the gas to continue to rise no matter what. What will actually lower gas fees is sharding. Although it should be noted that sharding will only lower gas fees on layer 2 protocols. Layer 1 will still be high when sharding is delivered. Ethereum.org explains sharding as the process of splitting up a database horizontally to spread the load. It will reduce network congestion and increase transactions per second by creating new chains known as shards. Basically, it splits up the network and will increase transaction speeds by preventing bottlenecking and decreases fees. Originally, sharding was supposed to roll out with the merge, but, shocker, has been postponed until 2023.
So let’s get down here to brass tacks. What is this transition to proof-of-stake going to do to Ethereum’s price? We already know that EIP-1559 from the London hardfork last August began creating deflationary pressure to Ethereum. With EIP-1559, instead of the transaction fee going back to the miners like usual, that ETH has been getting burned instead. According to watchtheburn.com, over 2.3 million ETH, which adds up to over $4.7 billion, has been burned from the supply since the implementation of 1559. Know that the merge itself will add a massive amount of pressure to the supply which will also make it go up in price in a big way. IntoTheBlock reports, “Following the merge, the amount of ETH issued is projected to drop by 90%, which would lead similar levels of fees to reduce the Ether’s supply by as much as 5% a year.” I cannot stress enough how big of an effect this will have on Ethereum’s price down the road. Many traders, including myself, theorize that EIP-1559 combined with the transition to proof-of-stake will act as a triple halving on Ethereum.
And we all know what just one halving does to Bitcoin. Let’s put this in layman’s terms. Deflationary pressure plus a 90% supply shock plus a faster, more secure, more efficient blockchain with no environmental FUD equals– The moon!!! So, what does this mean for the future of crypto? Is it possible for the merge to ETH 2.0 to be the catalyst that makes Bitcoin become the altcoin? Is the flippening even possible? I and many others think the answer to those questions are yes. In fact, I believe it’s inevitable. As of now, Bitcoin’s market cap is a little over $318 billion more than Ethereum’s. Yes, that’s a lot of ground to make up. But ETH has several obvious advantages. Keep in mind, Vitalik studied Bitcoin relentlessly in his younger years. He even co-founded Bitcoin Magazine. Vitalik knows the weak points in the Bitcoin DNA. And he created ETH and is now altering ETH’s genetic makeup to be fundamentally better than Bitcoin’s. The fact that ETH will have no environmental FUD and will be able to handle 100,000 transactions per second is a major selling point in the eyes of governing bodies and in the eyes of the all-important institutional investors. The Bitcoin maxis have made it clear time and time again that they have no interest in deviating from Satoshi’s whitepaper. And their devotion might be the thing that holds them back. Bitcoin’s time of finality is 30-60 minutes, and it won’t ever be faster than that.
ETH has proven it is willing to change inside out to comply with the times. And the masses will always side with whatever technology is faster and more convenient. It’s the evolution of technology. Not to mention, ETH has the NFT market by the short and curlies. The NFT market is growing exponentially and is laying the groundwork for the future of the metaverse. Bitcoin doesn’t have this capability. Unless it’s on a layer 2. I do feel like if Ethereum was to pass Bitcoin, the bulls would kick it into overdrive, and this could kick off a Bitcoin supercycle, where Ethereum is gaining new market cap as the epicenter of DeFi, NFTs and play-to-earn gaming, and Bitcoin climbs in price as more and more people use it for what it does best, store of value. The two will continue to pass each other back and forth until a clear market cap winner prevails. It’s commonly held that Bitcoin will overtake the market cap of gold, which is about $12 trillion right now. That’s massive! It will mean Bitcoin would hit half a million dollars for BTC. I’ll take it. Now, look at what Ethereum could do. It’s not gold. It’s a new industry. If it penetrated those new industries, Ethereum could hit $10 trillion or more in the next 10 years! That would mean one ETH could be worth $80,000! When it comes to long-term gains, my bet is on the protocol that works faster and uses less energy to do so. The bottom line is the merge is a historic once-in-a-lifetime event. Just like how people ask now if you got in on Bitcoin before the halving, the question in the future will be on if you got in on ETH before the merge.
This article is a transcription of a video made by BitBoy Crypto
Original video: https://youtu.be/ZJDg7uAVzmE