Bitcoin could be impacted by The Merge. Ethereum, the second largest cryptocurrency by market capitalization, has been in the spotlight for a few months. Indeed, the blockchain of this network is about to undergo a historic update that will change the way it works forever.
Now known as The Merge or fusion, this update had been in the works for nearly two years already. It was not until 2022 that its launch was officially announced after several successive postponements.
If the upgrade is getting so much attention right now, it's largely because of its promises. Promises that are likely to disrupt the entire cryptocurrency industry and Bitcoin in particular.
Bitcoin threatened by The Merge?
If at first glance the Ethereum upgrade seems to have no connection with Bitcoin, several analysts believe that its success could very well impact the latter.
For Kyle McDonald, an independent researcher, the Bitcoin network could very well end up being “regulated” following the Ethereum update. A regulation that would cause the price of Bitcoin to collapse. It is also to avoid unpleasant surprises that he recommends that members of the crypto-currency community sell their Bitcoins now.
The reasons he gives are relatively simple to understand. According to him, the update will allow the Ethereum blockchain to adopt a significantly less energy-intensive transaction validation method with Proof of Stake. Moreover, Ethereum is not only the second cryptocurrency in terms of value, but it is also a huge network hosting a multitude of other cryptocurrencies that depend on its blockchain.
Also, as soon as Ethereum proves that it is possible to use less energy to achieve the same result at the level of crypto-currencies, the whole market will be upset. Both investors and regulators would then realize that the energy-intensive method currently used by Bitcoin and Ethereum, called Proof of Work, was never really needed.
Reduced consumption
According to statistics, adopting the Proof of Stake mechanism will reduce the power consumption of the Ethereum network by more than 99%. The Merge will make the ETH blockchain a more energy-efficient network.
During his interview last Friday on CoinDesk TV's “First Mover” program, researcher McDonald cited the “climate crisis” and criticized the massive use of energy by Bitcoin and its users.
Thus, since Bitcoin does not have a team like Ethereum, it would be very difficult for it to abandon the Proof of Work mechanism. Because of this, he thinks that Bitcoin could be the first cryptocurrency to fall victim to these regulations.
The Merge: A downside for Bitcoin?
With concerns about the climate crisis becoming more and more prevalent today, it is only natural that the cryptocurrency industry should come under heavy criticism from the majority of environmentalists.
Blockchain technology has always been the main target of critics and regulators due to the amount of energy it consumes to operate.
According to analytics, a single transaction on Ethereum can use around 181-kilowatt hours. A figure that is equivalent to the energy consumption of a house in the United States for six days.
If blockchains require so much energy, it is largely to ensure the validation of the operations they process as well as to secure the networks. However, such waste of energy cannot continue any longer, especially if the Ethereum merger manages to show a safe way out for the entire industry for McDonald's.
The impact of The Merge on the Ethereum network?
The main objective of The Merge is to change the initial verification mechanism of the blockchain (Proof of Work), against a more ecological mechanism (Proof of Stake). This update should take place this month. It is supposed to allow the blockchain to easily maintain itself without having to use a huge amount of energy.
Kyle McDonald said in his interview that the possibility of Ethereum reducing the energy costs of its blockchain by 99.95% is very likely. In order to track the energy movement of Ethereum, he created the Ethereum Emissions tracker. This software takes a bottom-up approach but does not consider the price of Ethereum or the price of electricity, according to McDonald's website.
To explain his process, he claims to base himself first on the hash rate, then examines the material in question. Finally, he develops a technical argument for how much electricity the grid should use.
A global impact
Nevertheless, it is undeniable that the new update will have significant consequences not only on the Ethereum network but also on the overall market. Indeed, Ethereum represents a massive ecosystem for developers and is one of the main gateways for Web3.
Through the Ethereum network, it is possible to perform individual financial transactions without the need for intermediaries or centralized institutions through the use of smart contracts.
Using this ecosystem allows developers to create decentralized applications, or DApps, for token exchanges, decentralized finance, securities trading, interest generation, and even games, etc.
So, once Ethereum becomes more energy efficient many developers who previously were hesitant to join due to its potential impact on the environment, may very well be motivated to finally jump into Web3 and especially the Metaverse.
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