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On September 15th, Ethereum is expected to complete its merge from a proof-of-work to a proof-of-stake consensus mechanism, which could have a major impact on the cryptocurrency.
Ran Neuner, Founder and Host of Crypto Banter, said that the upcoming merge, also known as ‘The Merge,’ will be the biggest event in crypto history since the first Bitcoin was mined.
“This ETH merge is the most important event that’s happened in [crypto] since the first Satoshi block was mined,” said Neuner. “It could be the biggest catalyst for crypto, but it could also be the biggest catastrophe for crypto.”
The Merge is expected to transition ETH’s consensus mechanism from an energy-intensive proof-of-work protocol to an ESG-friendly proof-of-stake dynamic. If The Merge successfully occurs on September 15th, as is expected, then stakers will be rewarded with 5 to 15 percent yield.
“The whole reason why Munger and Buffett and all of these guys are just infuriated by the whole crypto world is [cryptos] don’t produce a yield,” said Steven Sidley, Professor at the University of Johannesburg and Head of the university’s Blockchain and CryptoVerse Research Group. “In fact, Ethereum after The Merge produces a yield, so it ticks that box.”
Neuner and Sidley spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News, who moderated the panel discussion.
Ethereum Merge
Cryptocurrencies are validated using either a proof-of-work or proof-of-stake consensus algorithm. A proof-of-work mechanism requires miners to solve a complex mathematical problem, which confirms transactions and rewards successful miners with more coins. A proof-of-stake, by contrast, allows coin holders to ‘stake’ their coins, in return for validation privileges and potential yield rewards.
“Proof-of-work effectively means that you need expensive mining machines to validate transactions,” said Neuner. “Those mining machines have to solve a mathematical problem, which is very complex and uses up a lot of electricity… Proof-of-stake is a much more energy-efficient way of validating transactions that doesn’t require all this heavy machinery.”
The Ethereum merge, on September 15th, is expected to take ETH from proof-of-work to proof-of-stake. However, Sidley cautioned that the transition to proof-of-stake is only the first part of the overall merge process.
“Gas fees are unlikely to go down and transaction throughputs will not go down,” said Sidley, who is also a best-selling author and a Director at Bridge Capital Future Advisory. “That happens in 2023, with the next steps of The Merge, and there will be a bounce in price… but it will be a much bigger bounce when they go to what is called danksharding, which is the next stage of The Merge, which pushes up TPS [transactions per second] and pushes the gas price down. That’s when I expect there to be really exponential growth.”
ETH to become deflationary
Following The Merge, the amount of Ethereum burned will exceed the number of ETH created, said Neuner, who is also the CEO and Co-Founder of Onchain Capital.
“We have to look at it on the day of The Merge, because after that, what happens is the amount of Ethereum that are released is smaller than the amount of Ethereum that are burned, which means that eventually the number will tend to zero,” he explained. “So that’s why this is so powerful, because you’re cutting the supply of Ethereum whilst making the network much faster and much easier to adopt.”
Neuner said this would make Ethereum deflationary, which could in turn make ETH more valuable.
“So, now you’ve got the top two assets, Bitcoin, which is mildly inflationary, and Ethereum, which is ESG-friendly, generates between 5 and 15 percent yield, and is actually deflationary,” he said. “And when you put all that together as an investor… [ETH] could actually maybe be a better investment than Bitcoin.”
To find out whether Neuner and Sidley’s price forecast for Ethereum and Bitcoin following The Merge, watch the video above.
Follow Michelle Makori on Twitter: @MichelleMakori
Follow Kitco News on Twitter: @KitcoNewsNOW
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