Ethereum Merge – Resulting in Change in Crypto as an Asset Class Worldwide

Ethereum Merge – Resulting in Change in Crypto as an Asset Class Worldwide

?ETH 2.0 a Crypto Asset ESG Compliant Resulting in Wider Overall Acceptance.

?Ethereum Merge an event which will change the overall acceptance, utility and penetration of Cryptocurrencies around the world including India, making ETH 2.0 less volatile, environment friendly and ESG compliant resulting in greater overall investor interest and participation.

?Ethereum?is a decentralized blockchain powered by its native currency, Ether (ETH). Ethereum is responsible for the creation of smart contracts which are the focal point for Decentralized Finance (DeFi), Decentralized Application (dApp) and Non-fungible Tokens (NFT). With a market cap of around USD 200 billion and having a market share of 23% in the overall cryptocurrency market, ETH is the second most popular and second largest cryptocurrency after Bitcoin.?

?ETH is currently powered and secured by a Proof of work (PoW) consensus mechanism, which provides incentives to network participants to solve arbitrary mathematical puzzles. Under the current PoW system, Ethereum miners earn 2 ETH per block mined, which occurs approximately every 10-19 seconds. The ETH Merge will shift the Ethereum security mechanism?from Proof of Work to Proof of Stake (PoS)?and greatly impact the tokenomics of the blockchain. PoS is powered by users staking their coins in exchange for the ability to validate new transactions on the network. Once the requirements of the network are met by validators, a new block is created and participants are awarded native tokens for their assistance in securing the network. ETH will be secured by validators instead of miners.

?The network will require a validator to stake 32 ETH in order to participate in the validation mechanism. Even though only 32 ETHs are required for validation, the more ETH that is staked, the greater the chance of being selected by the network. Once selected by the network, the validator will earn a reward generated through transaction fees. The transaction fees are known as “gas fees” that users pay in order to transact on the blockchain. Part of the PoS transition will introduce sharding a technical upgrade that splits the ETH network into different pieces in order to increase transaction speed and reduce network fees. This will help lower overall transaction cost and most importantly increase transition speed. The switch from PoW to PoS will result no mining activity thereby reducing the overall power requirement by 99.99% to run the ETH network.

?Large institutional investors, endowments, family offices and pension funds, are interested in cryptocurrency investments. However, with a strong ESG (Environment Social and Governance) mandate in place, with the amount of energy requirement in terms of electricity used for mining of ETH and other cryptocurrencies, the investment would never fit into the mandate. However, with the merge and reduced energy requirement the investment fits well into their criteria.

With the Merge expected to be around 15th September 2022, over the last few weeks ETH has already rallied. Hence investors and traders should be cautious and not become very optimistic and the overall economy is passing through turbulent times and inflation has gone down from historical highs but is still very high.

?__Dr. Farzan Ghadially.