In the crypto world, everyone is talking about “The Merge.” For newcomers to this story, the merge refers to an upgrade of the algorithm underlying Ethereum’s blockchain, or central infrastructure, which is already underway. It will make transactions faster and far less energy intensive. The new blockchain will still, like the current one, add blocks for each confirmed transaction, but will work differently.
Of course, there is a lot of talk and speculation about how this will go. And, what it will mean for the future value of Ether, the second most valuable crypto currency after Bitcoin. Concerns include that the shift will not be smooth; there will be disruptions in Ethereum’s infrastructure, $200 billion is at risk, and this might bring the industry to a standstill.
The Merge and Greater Uses
It should also be remembered that Ethereum isn’t just for transferring value, like Bitcoin. But it’s the leading ecosystem for other decentralized transactions. These include NFTs and unique digital items, ranging from artwork to an outfit for a gaming platform avatar. They are stores of value and are sometimes linked to real-world objects.
Despite these fears, the price of Ether has doubled over the last two months. This is due to the fact that after the merge, fewer new Ether coins will be created because the need for so-called “mining” will disappear.
But none of this really matters in the long-term. What really matters is that this should be seen as a turning point for the crypto sector. It is fair to say this could be the birth of crypto 2.0. The technology upgrade has the potential to usher in a new era for crypto, one of mass adoption. This is especially if, in parallel, the regulatory side of things finally catches up and the industry can shed its Wild West image.
Faster Transactions Will Lower Costs
One of the main technical aspects that will change with the new Ethereum algorithm is that transaction speeds will increase by 769,000%. This is because the mechanism that determines the legitimacy of each transaction will change. Currently, a huge, distributed network of computers runs software in which a majority of points need to agree with each other to verify a transaction and then subsequently add a block to the chain (also known as mining). The new protocol will allow a smaller number of trusted verifiers to validate transactions. Like miners, people who pay into the system to be validators will earn Ether, but on a smaller scale.
In addition to faster transactions, this upgrade will allow more transactions to take place simultaneously, providing the scalability that blockchain technology has long lacked. This means that the decentralized system will no longer run the risk of being overwhelmed with transactions. This will likely lower and stabilize transaction fees, which can currently change dramatically each day.
The Merge: New Tech is Leaner, and Greener
Alongside technical and regulatory concerns, environmental concerns have also been holding the crypto sector back in its quest to become a mainstream economic system. Especially as pressure increases for banks and other financial institutions to consider ESG, or environmental, social and governance, risks. The crypto sector currently has a huge carbon footprint due to the amount of electricity required to run the millions of computers that are needed to verify transactions. For example, Bitcoin operations alone account for the same amount of carbon emissions as Sweden.
That is why it is extremely significant that post-merge Ethereum will use 99.9% less energy, erasing one of the sector’s largest barriers to growth and wide-scale adoption. The change is akin to cars suddenly reducing their emissions to near-zero.
The Merge Paves the Road for Web 3.0 and the Mass Adoption of Crypto
All of these improvements will lead to more use of crypto and more use-cases. More trading volume in crypto will lead to the ability to have more sophisticated trading strategies, including algorithmic trading tools based on solid data. It will also bring the ability to deliver more sound investment advice and market analysis, like the kind that exists today in traditional markets, like stocks and bonds.
These changes will pave the way for wider adoption of NFTs, including by the mainstream banking and financial sectors, where the technology can be used to verify ownership, making processes like mortgages and loans more secure and more automated. A faster, less energy-intensive way to deal with NFTs will also speed up the adoption of Web 3.0, the next generation of the internet, which will become more interactive and three-dimensional, incorporating more augmented- and virtual-reality experiences.
Parallel Developments in Regulation Are Essential
But in order for mainstream adoption to go from being a hope to being a reality, the crypto sector needs regulatory clarity from governments, and also an internal shift toward proactive compliance.
Regulation is especially important when it comes to crypto markets and trading. These emerging institutions should have the same guard rails as modern stock and bond markets, such as mechanisms to halt trading among wild swings in value. Other weaknesses of the industry also need to be addressed, including the fact that bad actors can too easily use crypto for money laundering and other nefarious activities.
The Merge Can Be a Much-Needed Breakthrough To Take Crypto To The Next Level
Such safeguards will give the industry more legitimacy and use-cases, finally making it a dependable sector of the economy. There is no doubt the next month will be bumpy in terms of the merge, but all eyes should remain on the long-term effects. With faster, more efficient and less energy-intensive technology crypto is finally in a position to play a mainstream role.
About the author
Dr. Anna Becker, CEO and Founder of EndoTech. Anna has a technological and scientific background, developing new business from scratch, raising capital, and growing revenues. EndoTech delivers AI-driven algorithms for automated trading strategies across a wide range of financial assets.
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