Ethereum - Things to know after “Merge”

Ethereum changed its consensus algorithm from Proof of Work (POW) to Proof of Stake (POS). This process is simply called "Merge". Ethereum's Beacon Chain was introduced POS to the Ethereum ecosystem. After testing, it was merged with the Ethereum POW chain by September 2022.

Massive amounts of computers and mining rigs were verified blockchain transactions under Proof of Work, and earned incentives called mining profits. But it consumed huge electricity power, to run mining rigs and validating nodes.

PROOF OF STAKE

After "merge" - under Proof of Stake - if the miners want to take part in blockchain transaction verification, they should install validation nodes, and may need to deposit some amount of their own Ethereum into their account.This process is called staking.

LESSER ENERGY

Proof of stake (POS) consumes less energy, less hardware and less electricity. The old 24/7 roaring mining rigs were retired. Now, each new blockchain transactions are being verified by a few nodes, instead of 10s of 1000s of highend mining rigs. Roughly it reduces 99% electricity.

HEALTHY TOKENOMICS

The flow of new coin minting has slowed. Because no mining rewards can be given. This change is going to restrict circulation and make more demand.

DOWNSIDE

No immediate change in Ethereum transaction speed, and transaction fees. Higher network congestion and abnormal transaction costs including unjustified higher gas fees both are bitter truths for Ethereum. Unfortunately the "Merge" did not change any of these issues. EVM side chains like Polygon may strengthen themselves, by offering very least gas fees.

PRICE IMPACT

There is no immediate bigger price impact for Ethereum. Healthy tokenomics and reduced new Ethereum mints may strengthen the price in future. Moreover, if Ethereum foundation is willing to streamline its transaction fees, it definitely impacts the Ethereum price

WHAT EXISTING MINERS CAN DO?

Previous POW Ethereum mining hardware was specialised for ETHASH mining algorithm, to mine Ethereum. The existing Ethereum miners may use the same hardware and continue mining for other ETHASH supported coins. Mining Bitcoin is not a better option, as it needs ASIC miners. Monero is a better mining choice for GPU mining rigs.

ARE YOU HOLDER OF ETHEREUM?

If yes, you can hold buy or sell, as before. Merge cannot affect anything in your Ethereum balance. But beware of scammers. They may contact you to upgrade your Ethereum balance by transferring it to an unknown Ethereum wallet for a bogus "Ethereum Merge" token or any other zero value Tokens. There is no official ETH1 ETH2 or ETH3 Tokens. Please be aware. Beyond holding crypto currencies, learn blockchain and write your own economy.

Sankar Srinivasan

Certified Market Professional of National Stock Exchange of India