The Merge has proven to be one of the most significant updates to Ethereum. It has been over a month since the upgrade, and the effects of the Merge have started to become more apparent now. Despite the general market noise at this challenging moment for investors, the main underlying indicators are going correctly.
The proof-of-work (PoW) chain will no longer exist after the Merge, making Ethereum a proof-of-stake (PoS) blockchain. Beyond the headline-grabbing market movement, the Merge has already made some significant adjustments. However, some macro problems are hindering Merge advances. Let’s look at what those are.
Decarbonization and Deflation
Firstly, since October 2022, the quantity of ETH circulating has subtly started to deflate. More ETH is now being burned than is being staked. This is due to EIP-1559, which still allows for the burning of a part of transaction gas costs.
Deflationary economics have begun, but it is yet too early to see actual effects or a price change while markets are still significantly skewed toward anxiety. However, the total amount of ETH staked has now surpassed 14 million. Additionally, the staking rate percentage is already at its highest point and is still rising. More than 11% of the present total supply is staked.
The Merge has proven to reduce the environmental impact of Ether. Ethereum Foundation estimates that switching from PoW to PoS will reduce the network’s energy usage by 99.99%. It is crucial to improve the network’s energy efficiency. In the world’s current macroeconomic environment, when energy costs are high, reducing emissions is necessary.
Price Volatility
The decline in ETH’s valuation is being used as proof of Merge’s incompetence and overhype. The Merge is a diversion after such a brief period, but just like any asset or market, it cannot be evaluated on a limited snapshot of outcomes.
The Merge was a fundamental long-term shift to the governance and resource usage of the Ethereum network. Businesses should exercise caution when dealing with promises of instant, miraculous turnarounds because the Merges is about long-term sustainable development.
The world’s biggest ecosystem in crypto is arguably Ethereum. The Ethereum blockchain is used by several decentralized applications (dapps) and projects to run their operations and collect information. Scaling goods have become increasingly important as the ecosystem has expanded to make dapps quick and inexpensive to utilize regarding gas or prices.
This is the primary rationale behind the switch from PoW to PoS. Major TradFi organizations have already stated that marketplaces may not be accurately pricing the Merge’s potential upside because of the general market volatility.
Theoretically, prices ought to rise when supply declines and demand rises. Only time will reveal if this can succeed in overcoming the macroeconomic environment that is currently gloomy. Market observers are frantically searching for a turn, but it won’t happen now.
Final Thoughts
Since the economic picture has yet to turn around, investors who strongly believe in the long-term utility of ETH should ensure they are ready for greater volatility in the future. However, the long-term rationale for their venture, considering the above mentioned factors, should weigh more heavily on decision-making than on purely market action. Anyone involved in developing the Ethereum platform and the cryptocurrency industry should always keep volatility in mind and be prepared to handle price devaluations.
