On September 15th, the Ethereum Merge finally took place. It represents a significant change in how the entire network is managed. The merge differs from a straightforward software upgrade in that it changed the actual “physics” of how the network security is maintained.
The switch from Proof-of-Work to Proof-of-Stake as the consensus mechanism means there is no more Ethereum mining. Validators now provide all of the network’s support.
What’s Happened So Far
The Merge and amount of attention it has garnered are the biggest proof that Ethereum truly is the center of the Web3 world.
Since the Merge, ETH has dropped sharply and has been ranging back around where it was before the “hype-up” period for this event.
The network is more than the price though. Usability has improved considerably as the price of gas dropped from ~80 gwei to 19.76 gwei at the time of writing. The lowered cost of transacting on the network will continue to open up new use cases for Ethereum, which has the whole network optimistic about the future. Supply management is an important investor criteria that has improved since the Merge. ~8,200 ETH have been issued since the Merge, and issuance is now averaging around a 0.05% supply increase per year.
ETH supply has been deflationary over the past few days. That may fluctuate over time, but even if it isn’t deflationary, the minimal supply growth puts upwards pressure on price in the long-term. Additionally, ETH becomes an attractive store of value, as the asset isn’t being devalued.
Compared to BTC or ETH when it ran a proof-of-work consensus mechanism, ETH is issuing a far lower proportion of new supply.
This has a lot of investors excited for the future of ETH and where the network could go now, especially in a world where central banks have been increasing their money supply for the last few decades. Many are calling this a make-or-break year for ETH, because of the gravity of the Merge. Post-Merge, there are lots of scaling initiatives that will be implemented, but the switch to Proof-of-Stake is the most technologically demanding. The benefits of the switch should speak for themselves soon. For example, a major cost in the Proof-of-Work world is that the network is miner-supported rather than user-supported. Most users can’t afford to start a competitive mining business, whereas Proof-of-Stake enables holders to monetize their holdings by either becoming validators themselves or using a staking derivative like Lido or Rocket Pool. Competing Hard Forks One thing casual observers of the Merge may not have realized is that a hard fork emerged almost immediately afterward. A group of miners and users who wanted to keep the Proof-of-Work mechanism in place launched ETHW. Anyone holding regular ETH was airdropped the equivalent amount of ETHW.