The price of Ethereum (ETH 0.30 percent) has increased by 30% in the previous week on reports that “The Merge” is tentatively planned for September 19th. Investors are anticipating a lot of modifications to the blockchain and its Layer 2 blockchains, which are on top of the Level 1 ETH blockchain, as a result of this news. Is now the time to buy?
I believe there are three key value drivers for Ethereum after “The Merge.”
1. Developers will have more options
Ethereum is presently limited to 12 to 14 transactions a second, which makes it unsuitable for high-volume traffic. Unfortunately, this isn’t going to get any better after “The Merge,” but there are a few things that make me hopeful.
Sharding, which would expand the scale of Ethereum’s Mainnet, has been proposed by developers but may have advantages on Layer 2 blockchains like Polygon (MATIC 6.79%), which are the current focus of scaling technologies. Sharding, in essence, creates many blockchains out of one underlying blockchain.
2. Energy concerns will fade
One of the most significant worries about Ethereum is that its proof-of-work consensus algorithm requires a tremendous amount of energy to keep running. The Ethereum network, according to reports, uses as much electricity as the Netherlands.
Moving to proof of stake, where holders will validate transactions, will cut energy usage by more than 99.95 percent, according to Ethereum’s calculations. This will address one of the issues raised by Ethereum’s critics in the equation.
3. Stakers will take more ETH out of the market
Investors may make a passive income by staking Ether, which generates a return for users of the blockchain. The good news is that staking will remove Ether from the market, possibly boosting the remaining value of Ether on the market.
If the blockchain encourages more people to use it, the value of Ether could rise as stakers benefit from greater profits.
The risks for Ethereum
Ethereum and Ether, as a cryptocurrency, have several advantages over Bitcoin. There are benefits to be found in the Ethereum blockchain and Ether as a currency, but there are also dangers. Blockchain usage is high when users are ready to pay high transaction fees on the Ethereum network. In other words, while Ethereum’s high transaction costs act as a headwind for it, they also contribute to its profitability.
Ethereum, like Bitcoin, also has to scale more effectively in order to compete with other blockchains. “The Merge” is not going to help with scaling, and investors are hoping for future sharding or Layer 2 blockchains to expand the network’s functionality. There’s still more ahead, but I believe it’s still worth betting on Ethereum as we approach “The Merge.”