It's Important for Everyone in Crypto That Ethereum Merges

Not just the Ethereum community, but the entire crypto community is watching the integration. Both Bitcoin users and non-users should care about the event.




The Ethereum integration is finally happening after numerous delays over the years. The merger of the proof-of-stake beacon chain and the proof-of-work Ethereum mainnet, formerly known as Ethereum 2.0, may take place as soon as Tuesday. (For non-techies, I enjoy this endearingly nerdy analogy from the Ethereum Foundation itself: "If Ethereum were a spacecraft, it might not be quite ready for an interplanetary journey. The neighborhood has constructed a new engine and a fortified hull using the Beacon Chain. It's about time to hot-swap the new engine for the old mid-flight after extensive testing ")

Everyone in the cryptocurrency business should be watching this event with rapt attention. The integration will almost immediately increase the Ethereum blockchain's speed, scalability, and energy efficiency by 99%. Theoretically, it ought to be fantastic for Ethereum (both the network and the asset). Nobody can anticipate if the price of ETH will truly change after the merge or if it will remain the same because it has already been "baked in" — and at Decrypt, we don't perform any price forecasting.

However, the aspect of this all that interests me the most is how it will impact all the other cryptocurrencies and blockchains.

The issue with energy comes first.

Since Ethereum will no longer support proof-of-work mining, we will be able to watch the hash rate of the Ethereum network fall to zero immediately. According to Bitcoiners like Dan Held, this could increase public pressure on Bitcoin's high energy use. Additionally, it will remove Ethereum from the sights of authorities who are focusing on energy-intensive proof-of-work blockchains, leaving only Bitcoin (without the company of a fellow offender).

However, proponents of Bitcoin claim that proof of stake compromises network security. Additionally, a large number of Ethereum miners are dissatisfied with the merger because it would end mining and leave them with expensive, useless equipment. Could they go to Bitcoin in its place?

Second, there could be repercussions for coins other than the top two, particularly dubbed "Ethereum killers" like Solana, Cardano, Avalanche, and Polkadot.

You may assume that the success of the Ethereum merger will boost these other proof-of-stake cryptocurrencies, and in fact, many of them saw significant gains during the previous week, possibly as a result of the publicity surrounding the merger. Because many of these Ethereum competitors positioned themselves as greener versions of Ethereum, the opposite is also possible. Once proof of stake is used, this component of Ethereum's value proposition is lost.

Of course, all of these are issues of perception and image. The people who shout that NFTs are ruining the rainforest should stop when Ethereum switches to proof of stake. It should separate Ethereum from Bitcoin in discussions about how energy-intensive cryptocurrency mining is. But it could also not, given how consistently inaccurate and misleading mainstream accounts of the cryptocurrency industry have been. There are individuals who, despite everything, will never accept cryptocurrency (louder and more proudly than before).

Even while Ethereum developers are adamant that there won't be any big issues with the integration, Decrypt's Sander Lutz notes that "confusion surrounding the event could raise cases of scammers exploiting uneducated consumers."

Finally, as my devoted column readers are well aware (all tens and tens of them, to paraphrase Dean Winters from the most recent Allstate "Mayhem" commercial), I think regulation will be the biggest unknown for the entire crypto industry following the merger. Gary Gensler, the chair of the SEC, has maintained his position that Bitcoin is not a security and that he is fine with the CFTC having control over it. Ethereum, what about it? He won't express his opinion. ETH is commonly considered to be viewed by Gensler and the current SEC leadership as a security, in contrast to what Bill Hinman, a former SEC officer, claimed back in 2018.

Even if the Ethereum merger is an overwhelming success, it won't be very helpful in the long run if the SEC decides to attack ETH and all other Ethereum-based tokens. Of course, there is always a chance that the merger will happen quietly, without making a big splash, and won't affect pricing or shake things up in cryptoland. Even so, it would be a significant story. During Merge week, pay special attention to the news. Keep reading Decrypt, where our journalistic staff will cover every angle.


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