Ethereum, the second largest cryptocurrency by market capitalization, underwent significant development in the network's history called the Merge. The historic event on the 15th of September 2022 was a marvel which is widely compared to changing a racing car engine in the middle of a race. It went through without a glitch as the transaction began to take place a few minutes after the Merge.
The completion of the Merge represents a transition of the network from an energy-intensive system to a system that makes use of incentives and penalties to process transactions. The event vows to reduce the network energy consumption rate by over 99.95%. Many crypto enthusiasts and experts say that it could bolster the price of Ethereum in the long run and significantly change the network totally.
This is not the case in some hours following the Merge as the price of Ethereum plunges by 7 % from the price at the time of transition. The sudden fall in Ethereum price causes a debate among people in the space. This post entails everything you need to know about the future of Ethereum, investors' stand, and the price. But first, let's discuss what happened during the Merge.
The Merge: an overview
As explained earlier, the Merge is an upgrade on the Ethereum network that marks the transmission from the PoW mechanism to the PoS mechanism. To describe the process, the Ethereum foundation compared the process to a jet in mid-flight.
"The community has significantly built a new engine named the Beacon chain. After a series of tests and examinations, the chain was stated to be fit for transition. Hence, it became time for the hot-swap of the old engine(the mainet) for the new Beacon chain engine in mid-flight. Thus, it will merge a new and more efficient engine to the network."
Some questions might pop up in your mind, like what will happen to the old engine after the Merge? It is very simple. The Mainnet has been in use since the creation of the Ethereum blockchain in 2015. It uses the PoW to register transactions on the network securely. Proof-of-work uses high-powered computer networks, which consume large amounts of energy to process transactions.
The process is called mining, and miners are rewarded for their effort to keep the network safe. The Beacon engine uses the proof-of-stake, which consumes far less energy than the proponent. The PoS mechanism makes use of the validator to keep the network secured. The validators pledge a stake of their assets to the network and are rewarded accordingly. If they act dishonestly, they stand to lose their stake.
The new Beacon chain will replace the old Mainnet to process transactions; the network will now make use of a proof-of-stake mechanism to add blocks to the network. The Merge does not tamper with the information on the existing Mainnet as the stored information is relayed to the Beacon chain.
You can read more about it here.
Ethereum Price: What's Going On?
As we all know, Ethereum and all cryptocurrencies remain volatile as ever and are affected by ongoing macroeconomic factors. It has rallied between $1,400 and $2,000 in recent weeks. After the market surged higher than the previous price before the Merge, the price of Ethereum melted down a few hours after the event. The Merge, which is considered to pump the coin highly, suddenly turns out to be a sell-the-news event.
Investors and retail investors are hungry and willing to take small quick profits. The coin needs to compete with rising interest rates and the existing bear market to push the currency's price upward. Experts and crypto enthusiasts are not debating the future of the network. Though the short-term movement is not enough to judge the future movement of the coin, the price over time will depend on how successful the Merge is.
In other words, the price of the currency is considered to be affected by the Merge over time. The Merge will add another favorable earning method and reduce the entire Ethereum in circulation. This could also affect the future of "Token Hodling." While the event holds a promising future for the coin, investors and believers need to stick around for a while to benefit in the long run rather than expecting a jump in price immediately.
The Merge: How are investors reacting?
The Merge is ready to set the groundwork for other upcoming upgrades. As aforementioned, the crypto market is generally plunging and is currently at lower volume due to higher interest rates. The interest rate is said to be furtherly raised in an attempt to stop or control ongoing inflation.
Before the Merge, the net exchange flow of Ethereum, as traced by a blockchain data insight firm, Glassnode, shows that prior to the Merge, traders deposited a net inflow of $1.2 billion to trade the event. The event saw traders unsurprisingly take profits when where profits were available with the total amount now gone, and a net $395 million has left exchanges.
Typically this is seen as a bullish sign, and this will be promising if it stays that way as interest rates rise. Though, considering what investors stand to gain from the network in the long run, it will be more exciting to see more funds being invested in the network.
Did Ethereum Pick the Wrong Time to Merge?
At the moment, the network seems fine after the Merge, and it seems technically fine and has processed transactions seamlessly and swiftly using the PoS consensus. Following the Merge, the newly launched Beacon chain Ethereum sheds over 7% of its value the following day. Ethereum performed woefully after the Merge, after briefly hitting the $1,650 price before dropping below $1,600. The current is now down by 3.06% over the last 24 hours at a prize zone of $1,326.
In my opinion, it is worth noting that the network did not just pick the date for the current update, and it has been part of the project roadmap since the invention of the coin. Also, it is worth noting the crypto market is currently in a bear market. The world generally is struggling with a case of rising inflation, which has led to an increase in the interest rate. Combining the current situation, investors and the industry as a whole has a weak momentum across the market.
According to Bloomberg data sourced from traders, interest rates are expected to peak at 4.42% in March 2023 and stay above 4% for the rest of the year. As a result, the dollar is expected to hit record highs, which is a bearish case for "ultrasound money."
Although compounding the current issue, it is really a good time to merge, as it is an upgrade to improve the network and not to drive the price of the coin up. A popular adage among crypto enthusiasts is "we build during the bear market and sow during the bull run." It is exactly what is displayed by the Ethereum network.
What are the possibilities for investors?
As a result of the transition, the Ethereum network now holds a lot of new possibilities and opportunities for investors to explore. Though the Merge is not expected to increase the block production rate or lower gas fee, there is still a great future potential for the coin. Notably, the reduction in the energy consumption problem and carbon emission reduction are no small achievements.
The boost of Ethereum's environmental, social and corporate governance (ESG) credentials should be a good drive to back regulator-driven institutional investors. The Merge does not only offer investment in an eco-friendly environment but a new opportunity to earn a reasonable return at lower risk through the introduction of staking.
Notably, the higher the amount of locked ETH, the more the price increases. The Merge also introduces other potential benefits for traditional financial institutions. The overall supply of ETH might drop in the long run as a new token burning cycle will be introduced through staking.
Pre-merge, 13,000 ETH was the daily reward for PoW miners. Post merge, it will now pay out only a sum of 1,600 ETH a day as staking rewards which represents a 90% drop in the issuance of the network token. Meanwhile, a portion of the gas fee also continues to be burned as only a few percent is given to the validator as an incentive.
This can help to cap and maintain a constant supply of the token, which can help drive the price up. Also, as the supply of ether decreases, the value of individual coins could increase, which would be welcome news for investors.
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