Newton’s third law of motion made us understand that for every action, there’s always an equal and opposite reaction. Every decision and action we take in life directly or indirectly affect our environment and the people around us. This has been the order of things since time immemorial and is more reason why every decision we make in life is important, especially when it pertains to new inventions.
The Ethereum blockchain has recently been subjected to this school of thought after the inventors took an extra step to reprogramme and change the fundamentals of the Ethereum blockchain for greater scalability, speed and security whilee it consumes little energy.
The crypto industry has grown tremendously in the past few years and has continued to grow to date, a feat which has been achieved by the major contributions of the Ethereum blockchain and its native coin, Ether (ETH).
Ether is the second largest cryptocurrency next to Bitcoin and with a market capitalization of more than $100 billion, Ethereum is the largest and most popular altcoin.
Additionally, the Ethereum blockchain serves as the main platform of choice for developers to build their projects like Non-fungible tokens (NFTs) and decentralized applications (DApps).
According to research by the Bybit crypto exchange, Ethereum is the second most popular alternative cryptocurrency after Bitcoin and one-sixth of adults in the United States confirmed they are familiar with Ethereum.
In a bid to improve the Ethereum network in terms of its scalability and speed, the Ethereum Merge which was proposed by the Ethereum blockchain developers has been completed, but it’s not very clear what impact this merge will have on the Ethereum blockchain and crypto industry as a whole.
In this article, we will discuss the Merge and the likely impact it will have on the overall crypto industry.
Understanding Ethereum Merge
The Ethereum Merge or Ethereum 2.0 has been one of the major topics of discourse in the crypto space since 2020. This is a transition which aims to scale the Ethereum blockchain and transform the blockchain into a more appealing platform for creating different crypto projects.
The Ethereum Merge isn’t a one-time achievement but rather a gradual process that started in late 2020 with the launch of a proof-of-stake (PoS) version called Beacon Chain.
The Merge was finally concluded on September 15, 2022, and its launch has put an end to the Proof-of-Work chain on which Ethereum had been operating.
The argument on the superiority of Proof-of-Work vs Proof-of-Stake has been a timeless one in the crypto world. Some argue that Proof-of-Stake networks consume less energy than Proof-of-Work networks.
What Does Ethereum Look Like After The Merge?
The main goal of the Ethereum Merge is to change from the PoW blockchain to a PoS blockchain but mining will become unattractive on the network due to a difficulty bomb which will reduce the rewards for mining ETH.
However, miners have reportedly resisted this new change and insisted on proceeding with the old forked PoW version of Ethereum while the main Ethereum blockchain will make use of the PoS network in the absence of miners.
After the Merge, only validators will run the blockchain contrary to the miners who did in the past. A validator is mandated to lock up 32 ETH as support to the blockchain and earn staking rewards.
Ethereum’s transition to a more advanced blockchain is not limited to just the Merge. It is rather a half journey to the full transition of the blockchain which the developers are still working on.
According to Ethereum co-founder Vitalik Buterin, Ethereum has a next major goal which borders on improving scalability by segmenting the blockchain into parallel portions, through a process known as Sharding.
Some Misconceptions About The Merge
Just like in every invention, people have begun to propagate certain misconceptions about the Merge from their speculation.
The most popular among them is the idea that the Ethereum Merge will make the network automatically faster and in turn, contribute to lower transaction fees. However, this may happen but it is not instantaneous, it’s a gradual process.
Secondly, some believe that the Merge will induce a large number of unstaked ETH into the market. However, this will not happen because staked ETH will remain locked up until the scheduled Shanghai upgrade is completed in 2023.
Again, some believe that due to the Merge, it will be easier to analyse and predict the price action or it may become a market which is manipulated by the news, causing its price to drop in the end.
This is normal market psychology when prices are driven up by people who buy up assets because they are excited or anticipating an event. When such an event has occurred and maybe, it never lived up to the hype and expectations given to it, the price of the asset will likely drop.
Crypto traders always bank on their skills and abilities to leverage competing predictions but the crypto winter season which the crypto market has witnessed already makes it almost impossible to make a correct prediction.
Some Possible Trading Strategies For The Merge
The first trading strategy you can employ is to hold a large amount of ETH which can be up to the 32 ETH requirement for becoming a validator on the Ethereum network. You could earn up to 7% interest annually.
Even if the price of ETH doesn’t surge to the level of earning you a 1000% return this year, your locked assets will keep earning you some passive income
Alternatively, you can “sit” in stablecoins, considering the volatility level of the market. This strategy is more reasonable for new traders who do not understand how to analyse the market or are not certain about the next direction of the market.
Depending on the extremity of movement, you may decide to capitalize on that. For example, you may decide to go long if the price of ETH drops back to $880 as it was in June. You may also go short if the price of ETH surges to extraordinary heights.
You must understand that whatever strategy you choose is not a guarantee of profits, most active traders still lose money in trading. Your best bet will be to choose a good entry point, place your order and forget about it until whenever the market is favourable.
In summary, the Ethereum Merge which has been finally completed will transform Ethereum from a Proof-of-Work blockchain to a Proof-of-Stake blockchain. This is designed to improve the scalability and speed of the network which will also reduce the transaction fees.
However, the Merge will likely drive up ETH price due to the hype but the current bear market will not deem this significant.