Special to the Financial Independence Hub
According to a recent report from CNBC, Ethereum has just completed its “final dress rehearsal” for the so-called Merge, which will shift the second-largest cryptocurrency by market value from a “proof of work” validation protocol to “proof of stake.” As CNBC notes, this upgrade has been years in the making and is considered “one of the most important events in the history of crypto.”
The reason is simple: efficiency. Moving to “proof of stake” will reduce Ethereum’s carbon footprint over 99.5% per its internal estimates, and also significantly lower its “gas” prices, i.e. the cost of transactions. Carbon emissions and the cost of converting crypto to fiat currencies (or other crypto currencies) are the two major criticisms of Ethereum, in particular, and crypto, in general.
Network will be more secure and less prone to manipulation
The Merge is not only important to the investing public, however; it’s a critical upgrade for the crypto community. The Ethereum network will now be more secure and less prone to manipulation. For example, anyone who wants to take over 51% of the network will now need to hold half of the total staked amount in ETH, rather than 51% of the mining hash power, as was the case previously. What this means is that the platform is guaranteed to be controlled by those who have a long-term interest in its success, ergo the term “proof of stake.”
But it’s the lower “gas fees” that will probably attract the most attention: and have the most profound effect on adoption. As the cost to process any transaction on the Ethereum blockchain goes down, more adoption will occur, meaning more people will be more open to participate in Ethereum blockchain projects. Think of how stock trading took off in the 1980s after US markets were deregulated and the world’s first discount stockbroker, Charles Schwab, opened for business. More recently, Robinhood spurred another surge in trading by reducing the cost of stock transactions to zero. This is commonly referred to as the “democratization” of investing. With the Merge, a similar revolution is coming to crypto.
Some dangers too
There are dangers, of course. The nightmare scenario would be that, despite all of the preparation and the obvious benefits, the Merge fails, causing the network to break down and miners to sell their ETH as they find it more profitable to put their money and equipment elsewhere. There could also be a “race to the bottom” as gas fees on other platforms fall to zero. Ethereum would then no longer be considered a premium platform, and crypto would become commodified: a potential disaster for the prices of popular tokens like Bitcoin and Ethereum. Remember that there are more than 20,000 tokens being minted.
On the other hand, the publicity surrounding the Merge is itself a positive development, drawing attention to the success of big blockchain projects like Ethereum, while contextualizing crypto as a progressive, learning community committed to the environment and democratization. This should help the entire crypto ecosystem simply by teaching more people about the technology, the key to future adoption.
Ultimately, which token users choose to invest or transact in will be less important than the evolution of the ecosystem — and, on an even grander scale, decentralized finance (DeFi) — itself. For example, our platform is token-agnostic because we want to attract as many users as possible by giving them as many choices as possible.
If Charles Schwab had only offered a few stocks for sale, it would not have helped to create the dynamic stock market we have today. The same principle is true with crypto platforms now. It is our users who make our platforms succeed, and the Merge is a giant step in the right direction.
Jacky Goh is the co-founder and CEO of RewardsBunny, an innovative cashback platform that rewards users for your online shopping with cashback in Crypto or USD.