Top Facts About the Ethereum Merge

FinanceFeeds Editorial Team

With the so-called “Big Merge” just weeks away, let’s jump right into what it all means and how cryptocurrency trading prices could be affected in the aftermath. First top: learning the difference between Bitcoin and Ethereum in order to understand why Ethereum is making such big changes.

Bitcoin vs. Ethereum

Bitcoin functions as a currency and a trading instrument, but nothing more. The Ethereum blockchain, by contrast, has practical uses in facilitating “smart contracts” and hosting NFT marketplaces, for which there seems to be some sustainable demand—perhaps enough to send Ethereum prices soaring past the King of Crypto in time, according to crypto promoter Roger Ver, who said he could see Ethereum’s market cap outshining Bitcoin’s at some point. Knowing this can help better illustrate what the Big Merge is: essentially an upgrade from a proof-of-work system of validating transactions to one that works by proof-of-stake. The excitement behind the Big Merge is so big, in fact, that the mere announcement of it buoyed up ETH prices in the first half of this year, despite otherwise choppy crypto waters at the time. By August 25th, Ether had doubled its price in the previous two months. At the same time, Ether prices were volatile, tumbling from levels around $2,000 mid-month to approximately $1,500 by month’s end.

One reason for the excitement was environmental: The new system could lower Ethereum’s electricity consumption by a factor of 1000. Other reasons have to do with improvements in blockchain efficiency. Whichever factor or combinations of factors was key, “The crypto industry has needed a new narrative, new hope, for some time now and I believe Ethereum delivered that with the Merge”, explained Max Kordek of Lisk in late August. Join us as we discuss the significance of the Merge and consider its possible results.

August and September

August 4th saw the first phase of the big changeover, when the Ethereum Improvement Proposal (EIP) 1559 was initiated. The aim here was to hold down supply of the Ether token, which would boost the value of each one, and also to keep transaction fees steady. After this stage was complete, costs on network transactions would be more clearly defined, as would the amount of Ether paid out to miners who help validate transactions. As to the issue of supply, 539.29 Ether tokens would be “burned” or removed from circulation. As this upgrade – which was nicknamed London – approached, Ether prices sunk, but, by the day after it occurred, they had picked up steam, gaining 2.6% to settle at $2,796. This kind of activity seemed promising to Viktor Bunin of Bison Trails, who remarked that “The new ether supply dynamics may spark a new virtuous cycle where increased price leads to greater adoption and vice versa”. Pankaj Balani of Delta Exchange disagreed, maintaining that only a Bitcoin bull run could bring Ether along “Further and test the $3,000 mark”.

The next important date that Ethereum cofounder Vitalik Buterin wanted his Twitter followers to diarize was September 6th, when the following stage – called the Bellatrix upgrade – was scheduled. Bellatrix would itself trigger Paris – the final stage – and the technical work would have been accomplished. Ultimately, completion of the Merge “Is coming around September 10-September 20”, Buterin tweeted.

The Fallout

Practically speaking, the Merge was going to split the Ethereum network into two parts – one working by proof-of-stake and one by proof-of-work. Projects based on the Ethereum blockchain, like the NFT marketplace OpenSea, would find themselves duplicated. It would have to be decided, in some way, which were the “real” NFTs. Bitcoin has experience with this kind of “forking” process, for instance when Bitcoin Cash and Bitcoin Gold were created. Similar risks surrounded the Merge, including the concern people would show no interest in the newly created branch.

In terms of actual opposition to the Merge, two voices had sounded out. One claimed that proof-of stake was a bad idea, despite the environmental benefits, due to the fact that larger stakeholders would accrue more power on the blockchain, detracting from its decentralized character. The other complaint came from people who had spent thousands of dollars on equipment for mining Ether, which stood to instantly become useless.

Would the changeover spark any immediate activity in Ether prices? If it goes smoothly, yes, according to analysts like Alex Tapscott of Ninepoint Partners, who said it “Should put a strong bid under the price of ETH and help it resume its upward trend”. On the other hand, Stephane Ouellette of FRNT Financial said no such reaction should be expected. Rather, the impact on ETH prices depended on “The subsequent years of development on the blockchain and the applications and technologies which emerge”.

Looking Forward

Taking a broader view of the cryptocurrency sector as a whole, the Merge may also make its mark and potentially “Boost the price of all crypto assets”, according to Tapscott. Don’t forget the potential gains on the environmental front from the successful integration of our concerns for our planet’s welfare into big business.

Those experienced in trading on the price movements of cryptocurrency as CFDs ought to keep an extra eye on top cryptos like ETH and BTC, the notorious volatility of which could act up in the period immediately surrounding the Merge. At the end of August, Katie Stockton of Fairlead Strategies, referring to Ether prices, wrote: “Short-term momentum now negative” and that a descent to the point of $1,000 was potentially on the cards. Max Kordek believed Ether prices would eventually be enriched through the Merge, albeit in the long-term. Which way will cryptocurrency prices swing as the merge approaches? Only time will tell.

Read this next

Uncategorized

Investors transfers $424 million out of bitcoin funds in six weeks

Despite bitcoin’s decent surge last week, which took the primary cryptocurrency up 70% from the year’s low, digital asset investment products saw outflows for the 6th consecutive week.

Digital Assets

OKX has $9 billion in ‘clean assets’, shows latest proof of reserves

OKX, formerly known as OKEx, has released its fifth proof-of-reserves report amid increasing demand of crypto investors asking for transparency from exchanges they trade with.

Digital Assets

Circle seeks France license to launch Euro stablecoin

Circle, the issuer of the second-largest stablecoin by market capitalization, is seeking to get a dual registration in France as it aims to on-shore its flagship product for the European market – EUROC – a reserve-backed stablecoin.

Digital Assets

CryptoWallet.com Among Minority of Successful Companies to Renew Coveted Estonian License

CryptoWallet.com has successfully renewed its virtual currency service license from Estonia’s FIU for the third year in a row, despite regulatory changes that have made it harder for virtual asset providers to meet the required standards.

Inside View, Institutional FX

Time for brokers to add options trading as volumes explode on high volatility

“Usually, adding options to the typical CFDs and equities offering leads to fragmentation of the platform technology as many brokers will need additional back-end and front-end components, and that could be an important barrier for them. Apart from that, legal hassle and costs associated with proper licensing of market data could be a barrier at first. We are seeing this trend among market data vendors and exchanges to make it easier and more affordable.”

Metaverse Gaming NFT

GCEX’s DeFi education and prime brokerage offering available in DubaiVerse

“We are excited to be part of the developments of The Sandbox and to join other top players in the region, including our regulator, Dubai’s Virtual Asset Regulatory Authority (VARA), as part of the DubaiVerse. This is a great opportunity to bridge the gap between Web3 early adopters and GCEX clients, building a community around Web3 and digital assets.”

Digital Assets

Circle wants Fed to back USDC stablecoin after “very serious stress test” with collapse of SVB

The collapse of Silicon Valley Bank allegedly proves Circle’s point that there is a need for its USDC stablecoin to be backed by the U.S. Federal Reserve with its U.S. dollars held at the Fed.

Digital Assets

Google searches for Crypto.com and Gate.io exploded by 300% amid FTX collapse

“The findings emphasize the importance of staying on top of market trends and being able to pivot strategies quickly and also offer valuable insights into the current state of the market and the behavior of traders, providing investors with valuable information to make informed decisions about their investments.”

Institutional FX

iS Prime reports £35m turnover, £16.2 million pre-tax profits, £37 cash balances

“We have plans in place to evolve the business over the next year, driving further growth for both iS Prime and for our clients.”

<