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Even when Ethereum was first envisioned in 2015, creator Vitalik Buterin had the foresight to see that scalability and security would become a problem if the project ever really took off. In 2022, seven years later, Ethereum has become the second largest cryptocurrency and is certainly experiencing scalability issues. In late 2021, at the peak of the bear market, transaction costs on the Ethereum chain were consistently above $10. Fees for complex transactions at the busiest times even reached several thousand dollars in some cases. Luckily, Buterin and the rest of the Ethereum developer community were able to see this coming from a long way away and have planned to fix the problems. This is the purpose of The Merge: a big step towards the overall goal of optimizing the Ethereum chain.
Should You Buy Ethereum Before The Merge?
The Merge could have several impacts on the price of ETH. If The Merge goes well, the price could go up. If it ends poorly, then the price may go down. The Merge could already be priced in and not much would change after the actual event. It’s also possible that ETH crashes even if The Merge goes through without a hitch if the community’s expectations are too high. So far, it seems like the Merge was a resounding success with no major issues.
Your personal verdict on buying ETH after The Merge is mostly reliant on how much benefit you think it provides to users.
What is the Ethereum Merge?
The planned upgrades that Buterin envisioned in 2015 were initially coined ETH 2.0. That name was scrapped after it made people think it was going to be a whole new network instead of a set of sweeping upgrades. It is now known by its three constituent parts: the launch of the Beacon chain, The Merge and sharding.
The context of The Merge is quite important. It is the second of a three-step plan to create a better version of Ethereum. The first step involved the release of the Beacon chain in December 2020. The Beacon chain currently runs in parallel to Ethereum and is used to test out the new consensus method (proof-of-stake or PoS).
The Merge is exactly what it sounds like. On the day of The Merge, the execution layer (the current mainnet) and the Beacon chain merged.
The final upgrade — called sharding — is on pace to be released in 2023. This upgrade will disperse data storage across the network, allowing for more efficient data storage. It may also lower transaction costs and increase speeds.
How Will The Merge Affect Ethereum?
The immediate impact of The Merge will primarily be that of consensus. Previously, Ethereum used a proof-of-work (PoW) consensus model. This method involves validators using powerful computers to solve math problems and earn the right to validate transactions. The main issues with PoW are a lack of validators because of high entry costs and power usage. The Proof-of-Work Ethereum network required an amount of energy comparable to the entire country of the Netherlands. Buterin Tweeted that the Merge lowered the world's energy consumption by 0.2%! That's astounding.
Replacing PoW with PoS has another great advantage other than reduced energy consumption. Validating on a PoS network is much less capital-intensive than on a PoW chain because of hardware and electricity costs. After The Merge, Ethereum issuance was reduced by roughly 90%, which likely made it almost permanently deflationary (or close to it) with the help of the previous EIP-1559 update. This may be the most important factor when deciding if you should buy Ethereum before the Merge because it will likely have a significant impact on the price of ETH in the long-term.
The Merge to the Beacon chain allows Ethereum to validate using PoS. This method involves having validators stake their tokens on the chain in exchange for the opportunity to validate. By staking, the validators are incentivized to correctly validate because the chain can confiscate their holdings for errors and give rewards for correctness. This method is estimated to use 99.95% less energy than the current system, according to the Ethereum Foundation.
How to Trade the Ethereum Merge
While anything is possible, fundamental analysis of major events like The Merge can provide useful insights. By looking at possible outcomes of The Merge, the ways the price of ETH might change can be predicted.
If The Merge is successful and provides benefits to Ethereum users, then there is a likelihood that the price goes up in the long-term. The added benefit could cause investors to flock to the asset and drive the price up.
If The Merge is unsuccessful (data is not transferred over the Beacon chain correctly), then investors could sell their positions. This would show underlying issues with Ethereum that could impact usability.
Finally, some believe that The Merge is already priced into Ethereum. Since the Ethereum Foundation has been fairly transparent in terms of timing and logistics, The Merge may not necessarily provide anything new to investors that they are not already aware of.
How to Buy Ethereum
Ethereum is perhaps the most widely available cryptocurrency and can be bought on a variety of crypto trading platforms. Among the best are eToro and Robinhood.
To get started on any of these sites, navigate to the platform to register and verify your account. From there, connect your bank account and begin trading.
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When Was the Ethereum Merge?
The Merge was put off multiple times to ensure for a seamless transition to Proof-of-Stake but it was finally completed in the early hours of the mourning of September 15th, 2022.
What’s Next for Ethereum?
The Merge will essentially only change Ethereum’s consensus mechanism. However, this change will pave the way for more changes that will have a larger impact on the user experience. Sharding is the major upgrade that is planned to follow The Merge.
Sharding will disperse data storage and validation across the entire network more evenly. The foundation for the sharding upgrade is already mostly built into the Beacon chain. There are still plenty of hurdles for the Ethereum Foundation to clear before sharding can be fully implemented.
Sharding will lower transaction costs and increase speeds on the network. The Merge will actually likely not significantly affect transaction costs or speeds; it paves the way for sharding to help scale the network (along with the consensus change of course).
So, Should You Buy Ethereum After The Merge?
The Ethereum Merge has already significantly changed the Ethereum network. A decision on whether or not you buy Ethereum after the Merge is largely dependent on your view of The Merge. If you see it being successful and providing benefits to users, then it could be worth buying. Conversely, if you see it failing or worsening the user experience, then selling or shorting could be ways to align your trading with your opinion.
Either way, a decision on how to trade the Ethereum Merge ultimately comes down to your opinion on how you see The Merge playing out.
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About Caden Pok
Caden has been involved with cryptocurrency for several years. He began trading and investing in crypto in 2018. Now, we mines multiple coins and holds positions in Cardano and Ethereum. He is very experienced with DeFi technology.