After years and years of delays, the Ethereum merger is upon us. The event formerly known as Ethereum 2.0, when the Ethereum mainnet merges with the proof-of-stake beacon chain, could occur as early as Tuesday.
(If you want a tech-free analogy for normie friends, I like this charming, nerdy from the Ethereum Foundation itself: “Imagine Ethereum is a spaceship that’s not yet ready for interstellar travel. With the Beacon Chain, the community has ha built a new engine and a reinforced hull. After numerous tests, it is almost time to hot replace the new engine with the old one at mid-flight. “)
The eyes of every person in the cryptocurrency industry are on this event, or they should be.
The merger will make the Ethereum blockchain almost immediately faster, more scalable, and 99% more energy efficient. In theory, it should be wonderful for Ethereum (both the network and the asset). No one can guess if the price of ETH actually rises after the merger, or if it is already “integrated” and not moving, and we do not make any price predictions at Decrypt.
But the most interesting part of all of this for me is how it will affect all other cryptocurrencies and blockchains.
First, there is the energy problem.
We will immediately see the hash rate of the Ethereum network plummet to zero, since the proof-of-work mining on Ethereum will end. This could put even more public pressure on Bitcoin’s large energy consumption, as Bitcoiners like Dan Held acknowledge. It will also leave Bitcoin alone (without Ethereum as a partner in crime) in the crosshairs of regulators targeting energy-intensive proof-of-work blockchains.
Just last week, the White House, in a new report on the use of cryptocurrencies and energy, seemed to be praising Ethereum and sounding alarms on Bitcoin: “Bitcoin is estimated to account for 60% to 77% of the total global usage of cryptocurrency electricity and Ethereum is estimated to account for 20% to 39% … There have been increasing demands for PoW blockchains to adopt less energy-intensive consensus mechanisms. The most obvious reaction was Ethereum’s promised launch of ” Ethereum 2.0 “which uses a PoS consensus mechanism”.
On the other hand, bitcoiners claim that proof of the stakes sacrifices network security. And a significant number of Ethereum miners are unhappy with the union, which will kill mining and leave them with expensive and unusable machines; might they flock to Bitcoin instead?
Secondly, there are the potential implications for other coins besides the top two dogs, most notably so-called “Ethereum killers” such as Solana, Cardano, Avalanche and Polkadot.
One might expect a successful Ethereum union to be beneficial to these other proof-of-stake cryptocurrencies, and in fact, many of them have seen strong gains over the past week, presumably thanks in part to the buzz of the union. But the reverse is also possible: many of these Ethereum challengers have proposed themselves as greener alternatives to Ethereum. Once Ethereum runs proof of participation, they lose that part of their value proposition.
Of course, all of these are issues of image and perception. Ethereum towards proof of stake should calm down the critics who scream about how NFTs are destroying the rainforest. It should separate Ethereum from Bitcoin in conversations about cryptocurrency mining that consumes energy. But it may not even be, since traditional cryptocurrency narratives have always been drastically misinformed and misleading. There are people (louder and prouder than ever) who will never come around with cryptocurrencies no matter what.
And while Ethereum developers insist that there is nothing serious that could go wrong with the merge, “the confusion surrounding the event could increase instances of scammers manipulating uninformed users.” Decrypt‘s emphasizes Sander Lutz.
Finally, as my faithful columnist readers (all dozens of them, to quote Dean Winters from Allstate’s latest “Mayhem” announcement) well know, I believe the biggest wildcard after the merger, for all cryptography, is regulation. SEC Chairman Gary Gensler continues to state that Bitcoin is not a stock and that he does not mind that the CFTC has oversight. How about Ethereum? He will not share his opinion of him. It is widely believed that Gensler and the current SEC regime see ETH as a security, despite what former SEC official Bill Hinman said in 2018.
While the Ethereum merger is hugely successful, it won’t help much in the long run if it has to contend with a SEC attack on ETH and all other Ethereum-based tokens.
Of course, it’s certainly possible that the merger will come and go with a whine, not a bang, and won’t move prices or shake the earth of cryptocurrency at all. But even that would be a great story. Watch the news closely during marriage week. Stay with us a decipher, where our reporting team will be all over the place.
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