Ethereum is strongly holding its number two spot in the cryptocurrency market. Since its release in 2015, this pioneering smart contract platform has undergone a few significant changes. All of them were aimed at making it a more efficient platform for dApps.
Recently, the Ethereum network underwent “The Merge,” which is the monicker for the shift from a proof of work consensus toward a proof of stake. This marked a massive milestone in the network’s history, setting a path toward scalability and becoming future-proof.
But what did the Merge accomplish? This article will provide you with some details on what it is and how it affects Ethereum in the short and long term. Moreover, we will analyze whether this upgrade has repercussions on Ethereum as an investment vehicle. So is it a good time to convert your BTC to ETH? Let’s find out.
What Should Investors Know About the Merge?
If you are interested in investing in Ethereum, you need to master some of its fundamentals first. Ethereum is a smart contract-capable blockchain that allows developers to deploy decentralized applications. This lets the network act as a decentralized, global supercomputer that is trustless and permissionless.
Previously, Ethereum used PoW mining to validate transactions and secure its network. While this method is highly decentralized, it has a few shortcomings regarding scalability. PoW uses miners, which require large amounts of electricity to run. This makes it environmentally unfriendly. Moreover, networks using PoW have low transaction throughput. This quickly translates into congestion and high transaction fees.
To solve these issues, the Ethereum core development team has been working towards a Merge to a PoS network for the past two years. In this environment, transactions are confirmed by validators instead of miners, requiring much less energy. Moreover, these PoS networks are highly scalable and can accommodate a large number of transactions, setting the path for mass adoption. At the same time, gas fees remain low, allowing users to experience blockchain in a cost-effective manner.
How Has the Merge Affected Ethereum?
The Merge happened on September 6, 2022, amidst the unfavorable crypto market environment we are still experiencing today. As a result, the switch to PoS didn’t have a significant price impact on ETH but managed to push through some crucial upgrades that benefitted both users and developers of the platform.
Reduced Energy Costs
As previously mentioned, the Merge removed the miners from the equation, reducing energy costs for running the network by around 99%. This accomplishment effectively removed any narrative surrounding Ethereum regarding its negative impact on the environment. Overnight, the network became carbon-neutral and allowed skeptics to accept it as a viable decentralized platform for building dApps.
New Validators
The PoS mechanism introduced validators, which stake ETH to get the right to confirm new blocks on the network. While there are 460,000 validators active on the network, this has spurred some major concerns around centralization.
As a matter of fact, nearly 60% of the staked ETH is controlled by no more than five major entities, most of them being centralized exchanges with large ETH holdings.
Reduced Issuance Rate
With the Merge, the issuance rate of new ETH tokens has dropped significantly. While on PoW, miners issued ~13,000 ETH daily, that number has dropped to only 1,600 now. Moreover, through the introduction of the EIP-1559 proposal, some of those ETH are burned with each transaction.
In the long term, we could see less ETH created than burned, which will turn Ethereum into a deflationary asset.
Ethereum Price Forecast
So what do analysts on the internet think of future Ethereum price action?
Priceprediction.net provides a highly bullish target for the following years, predicting $2,320.55 for 2023 and up to $4,857.40 for 2025.
Digitalcoinprice.com is even more enthusiastic about the ETH token. Their targets are $3,153.44 for 2023 and $5,552.19 for 2025.
Is It Worth Choosing Ethereum Now?
Ethereum is a pioneer in the blockchain space regarding smart contracts and has the most active developers on the chain. With the merge making it future-proof and additional scaling upgrades coming, it’s safe to say that Ethereum has a lot of potential for growth. Considering prices are on the low side at the moment, it might be the best time to accumulate some ETH using trustworthy exchanges like Godex.
