Here’s Why Ethereum Drops After the Merge
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Here’s Why Ethereum Drops After the Merge
Introduction
There’s a lot to talk about regarding the Merge and ETH. Among the concerns are the energy efficiency of the network, Regulation, and Proof-of-stake.
But before we get into those issues, let’s take a moment to look at where Ethereum stands in the Web3 ecosystem. If you’re looking for a top-tier platform to trade your crypto assets, click here for More information.
Proof-of-stake
Ethereum will drop significantly after the Merge because it will no longer be able to issue new ether. According to some proponents, the impact will be equivalent to three Bitcoin halving events.
The new ether mined daily will drop from 13,000 to around 1,600 per day. As of today, a single Ethereum transaction uses enough energy to power a US household for a week, but that amount will decrease to as little as boiling a kettle.
The switch to proof-of-stake will reduce the number of new eths issued yearly and provide institutional investors with financial incentives for staking.
This will make crypto more appealing to institutional investors, and it will also lower the inflation rate. Moreover, the switch to proof-of-stake will lower the price of ETH.
Needham & Co. estimates that the annual new issuance of ETH will fall from 4.9 million to around 970,000 after the Merge.
The Merge will also introduce significant changes to the network infrastructure and economic incentives. These changes will affect every participant in the Ethereum ecosystem.
The biggest owners of the coin could gain outsized sway over the network and move away from the decentralized ethos. This will also affect the price of the tokens traded on the major crypto exchanges. It will be essential to watch out for this, as the new rules will affect how the network works.
Energy efficiency
According to a press release by ConsenSys, the merger will result in the largest decarbonization in the history of technology.
The merger will also eliminate the need for crypto miners to have the vast computing power to validate new blocks in the chain. These miners would receive new tokens for validating these blocks.
The merger will also drastically reduce Ethereum’s energy consumption. It will use 99 percent less electricity than it did before.
This is significant for the environment, as cryptocurrencies have been criticized for their high energy consumption. As such, Ethereum has the opportunity to become one of the most energy-efficient cryptocurrencies.
Regulation
The Ethereum Merge was the most anticipated event before it took place on 15 September. It trended as the most discussed term a day before the event, but social activity on ETH decreased dramatically after the merger.
The underlying reason is that the PoW algorithm that ETH relies on has been rendered obsolete. The Ethereum price may drop in the second half of September.
The Merge has several implications. Firstly, it removes the proof of work mechanism that requires enormous computing power to validate blocks.
Crypto miners use this technology to solve computational puzzles, validate new partnerships in the chain, and earn new tokens. While the Merge does not solve the scalability issues, it may prompt policymakers to ban the PoW token.
Second, the Merge paves the way for improvements in scalability. As part of this upgrade, sharding will be enabled, dividing the Ethereum network into smaller pieces, and increasing the bandwidth for processing transactions. While this may be a concern for some investors, it will not significantly impact investors and the start-up scene.
ETH’s place in Web3
ETH is at the heart of the Web3 ecosystem regarding total economic activity, user growth, and developer engagement. The Merge was a significant change in the network’s consensus mechanism, transitioning Ethereum from Proof-of-Work (PoW) to Proof-of-Stake (PoS) mining.
PoW mining requires specialized equipment and consumes a lot of energy. As a result, private mining pools controlled most of the hash power in the Ethereum network.
After the merger, many people in the Ethereum community are celebrating. On the weekly Zoom calls, developers have been singing the praises of the new platform.
In addition, “the Merge” – a recent upgrade to the Ethereum blockchain – is heralded as the most significant technical change in the history of the Web3 community. However, few details about the technical process and its implications for the larger crypto ecosystem are available.
Conclusion
While the Ethereum merge offers an environmentally-friendly option to crypto users, it also has the potential to affect the price of the cryptocurrency. The merger will be significant to holders of ether, the native cryptocurrency of the Ethereum blockchain.
After reaching record highs in November, prices have slid alongside other financial assets. Bitcoin has lost about 58% since the start of the year while ether has fallen 60% since its peak.
The Merge has the potential to knock ether’s price even lower. Despite its poor performance in recent months, ether has outpaced bitcoin in recent recoveries.
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