The Ethereum blockchain, which is currently second in size only to the bitcoin blockchain, is poised to start undergoing a significant update.
Through a process known as the “merge,” Ethereum will begin using proof of stake, a more energy-efficient mechanism, to validate platform transactions.
The update is comparable to how moving from dial-up modems to fiberoptics made it possible to utilize the internet for a larger range of activities, including streaming music, video, and online storage. According to Osprey Funds’ CEO and founder, Greg King, speaking to CNBC Make It.
Here is a look at the significance of the merger and how it will impact cryptocurrency investors.
What is a proof-of-stake (PoS)?
The blockchain will switch from a proof-of-work (PoW) paradigm to a proof-of-stake (PoS) one after the merge. Both of these algorithms are employed to enable users to add fresh cryptocurrency transactions and maintain a record of them on a blockchain network.
In the present proof-of-work approach, computers are powered by enormous amounts of energy as they compete to solve challenging mathematical problems that validate transactions.
On the other side, proof of stake necessitates that users have a “stake” in the blockchain, as the name suggests.
This implies that in order to authenticate transactions, Ethereum users will need to make a sizable upfront expenditure. This type is anticipated to use significantly less energy.
How will this impact current and future investors?
Investors might reap rewards in the future even though the Ethereum merger isn’t anticipated to immediately speed up the network or reduce transaction prices.
“While no outcome is certain, the merge could be bullish for crypto investors in the long run due to the groundwork it lays for future upgrades to speed, fees and ecosystem development,” King says.
More users may eventually result from quicker transactions and lower costs, which may have an impact on the price of ether, the platform’s native cryptocurrency that investors use to conduct transactions.
According to Vladimir Gorbunov, CEO and founder of the MetaFi ecosystem Choise.com, if the number of investors rises, the supply of ether should decrease. Additionally, when ether’s supply declines, the value of individual tokens may rise, which is good news for investors.
According to Currency Metrics, the price of one ether coin is roughly $1,600 as of September 14, 2022, down from an all-time high of about $4,892 in November of last year.
What effect will this have on the environment?
The blockchain is anticipated to become more energy-efficient as a result of the merger, as was already indicated.
According to its website, Ethereum’s current carbon emissions are comparable to Singapore and its overall energy usage to the Netherlands.
Since the merger should reduce Ethereum’s carbon footprint by almost 99%, it might be more appealing to investors who care about the environment.
Will the merger reduce Ethereum’s hacker exposure?
“The merge will definitely make Ethereum more secure,” Gorbunov said. According to him, following the integration, the initial expenditure needed to verify transactions on the blockchain would be close to $55,000 or 33 ETH.
Everyone would have to pay that price in order to gain access to the network in the first place, even hackers. Gorbunov anticipates the barrier will make Ethereum a lot safer.
King cautions that hackers will always be able to exploit the blockchain.
“After the merge, Ethereum’s susceptibilities may differ due to the underlying design change to the network, but the security risks will always remain the same,” he says. “Cybersecurity risk is always paramount.”
Keep in mind that ether, like many cryptocurrencies, is a highly volatile asset with unpredictable value changes and no assurance of making money. Experts advise against putting more money into these kinds of investments than you are willing to lose.