The Ethereum Merger Is Successful – How Will It Affect Traders And The Global Crypto Market?

by Arthur · October 2, 2022

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After months of speculation, the long-awaited Ethereum (ETH) merger finally took place on September 15, 2022. The merger saw the popular blockchain network move from its hardware-based PoW (proof-of-work) model to the more environmentally friendly PoS (proof-of- stake) model.

The merger will see the Ethereum blockchain reduce its carbon footprint by 99.9%, resulting in faster transactions and lower fees. So, what are the implications of this merger and how will traders be affected?

Understanding the Ethereum Merger

Like most cryptocurrencies, Ethereum follows a decentralized governance system. Any decisions about the blockchain protocol are now up to the community. In early 2020, the community decided to change the blockchain’s PoW mechanism to PoS to reduce energy usage and drive faster transactions.

After the decision, ‘Beacon Chain’ – a test area for the PoS mechanism – was launched on December 1, 2020. The Beacon Chain ran in conjunction with the main PoW-based Ethereum chain, and its purpose was to test the potential consequences of shifting to the PoS model.

Over 400,000 validators collectively staked over $23 in ETH on the chain. It was a success – as Beacon Chain showed that Ethereum could maintain the PoS system.

Fast forward to September 15, 2022 – The Beacon Chain was merged into the Ethereum main chain, replacing the old PoW system. As the merge was successful, we are now officially upgraded to Ethereum 2.0.

However, the upgrade also created a new fork of the blockchain and forked tokens – EthereumPoW or ETHW. Why was this fork created?

Although the majority voted to upgrade to the PoS system, a large part of the community still wanted to remain on the PoW model. Most of these community members are ETH miners who believe that the new upgrade will drive them out of work – bbecause a PoS mechanism does not require hardware-based mining.

The EthereumPoW fork allows them to keep their profits. ETHW is the new native token for this forked network.

Some of the existing ETH holders will also receive ETHW airdrops, which will be supported by some of the major crypto exchanges in the industry. These exchanges have also listed ETHW for spot trading on their platforms.

What are the benefits of the Ethereum merger

Because the PoS system does not require hardware-based operations, Ethereum trading fees will be significantly reduced and network speed will increase.

Ethereum’s mainnet not only hosts ETH tokens, but also hundreds of other cryptocurrencies known as ERC-20 tokens, including some of the most popular coins such as USDT, LINK, and Wrapped Bitcoin. These tokens will now leverage the PoS model and traders will enjoy lower transaction fees.

The Ethereum blockchain also hosts NFTs (non-fungible tokens). So the NFT transaction fees will also decrease. The most important advantage of the merger is that the energy waste from the crypto industry will be significantly reduced.

We are currently entering a critical global energy crisis. So an energy-friendly PoS system will definitely attract more new users.

Following the upgrade, Ethereum has also announced plans for sharding and purging, reducing the total ETH supply in the long term, making the altcoin more profitable for long-term holders. Bitcoin is often called “digital gold” because of its limited supply. We may see the same apply to Ether soon.

It can also have a very positive impact on the market. As the merger has been successful, Bitcoin remains the only top tier coin that uses the PoW model. This shows that the crypto industry has matured technologically, legally and ideologically.

More users will now be interested in keeping their assets long-term, which means less liquidation and less volatility in the long run. Furthermore, the prospect of becoming a validator will engage users to increase their crypto assets.

According to founder Vitalik Buterin, there is one multi-year roadmap forward for Ethereum after the merger. The next major step in the upgrade is called ‘the surge’, which will see the network split into smaller blocks to drive scalability and speed up transactions.

What are the risks of Ethereum 2.0

No innovation comes without risks or challenges. Migration to a PoS model means that only the fortified “kingdoms” can potentially become a validator.

In Ethereum, validators must deposit at least 32 ETH. Thus, there is a risk that wealthy whales will replace conventional miners, which is contrary to the idea of decentralization.

There is also a risk of negative financing. Traders can potentially buy ETH on the spot markets and receive ETHW from time to time. Because of this, some traders may enter excess short positions in perpetual and futures contracts, triggering negative funding.

It is also important to understand that PoS validators are new and much less experienced than miners. So we may see some bugs pop up across the network from time to time.

Overall, the Ethereum merger is a monumental step for the entire crypto industry. Although there are risks, the potential financial benefits of this upgrade are significant. Only time will tell if this potential is fulfilled.

Adam O’Neill is Head of Marketing at Bitrue, a veteran of Asia’s technology sector.

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