In 2022, cryptocurrencies have lost almost $2 trillion in value. Cryptocurrency’s impacts are worse than awful. Some bitcoin exchanges and investment firms have closed. Voyager Digital, 3AC, and Celsius, a bitcoin lender, have announced bankruptcy in recent months.
Bitcoin’s collapse has hurt work. Coinbase laid off 5% of its personnel (1,180 employees). Gemini, Crypto.com, BlockFi, Bitpanda, and OpenSea will either cease hiring or decrease staff by 5 to 20%.
One bright spot remains. Ethereum’s infrastructure is being improved to make it more reliable and scalable. The Merge’s website calls it “the year’s biggest bitcoin event.” Today is Sept. 19.
What is the Merge?
According to Ethereum.org, the Merge is “the joining of the existing execution layer of Ethereum with its new proof-of-stake consensus layer…It eliminates the need for energy-intensive mining and instead secures the network using staked ETH. A truly exciting step in realizing the Ethereum vision — more scalability, security, and sustainability.”
So what does this mean for the average person? Currently, Ethereum is mined through proof-of-work, meaning you need very powerful and energy-intensive computers to mine Ethereum. The Merge will upgrade Ethereum to proof-of-stake, which means owners of Ethereum stake their coins to validate transactions and power the network.
This upgrade will result in Ethereum becoming significantly more green. Ethereum’s energy consumption will be reduced by 99.95% and use dramatically less carbon to be more secure. Under proof-of-stake, Ethereum is secured by validators who stake their coins instead of miners.
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The effects of merging for the price
While crypto can be volatile, the upcoming Merge can potentially have an impact on Ethereum’s price.
In proof-of-work, miners were incentivized to have more powerful computers to earn blockchain rewards. Under proof-of-stake, people with the most cryptocurrency get the most rewards. People will be incentivized to accumulate and hold as much Ethereum as possible.
Solving the scalability problem
Unlike Bitcoin, Ethereum is used for both a decentralized currency and storing computer code that can be used to power financial contracts and applications. The Merge will, in theory, make Ethereum more efficient and quicker. This will shorten the processing times, especially during peak network usage. As a result, more companies may start to use Ethereum due to its greater efficiency and scalability.
After the Merge, the number of Ethereum tokens issued may drop by 90%, according to Aaron Samsonoff, chief strategy officer and co-founder of InvestDEFY, a creator of structured crypto products. This will make Ethereum deflationary, which means the total supply of Ethereum will slowly decrease over time. This would reduce the supply of Ethereum, creating upward pressure on prices as demand rises or stays the same.
The combination of these issues can potentially have a large impact when it comes to the future price of Ethereum. The more coins you stake, the more rewards you earn. This combined with the new deflationary nature of the Merge will reduce the supply of Ethereum. In addition, there may be greater institutional demand for Ethereum, also increasing the price.
Investors should do their own research before investing in cryptos. Due to its high volatility, you should only invest what you can afford to risk losing.