A Historic Day in the Crypto Ecosystem
The world’s second most valuable cryptocurrency, Ethereum (ETH) has successfully executed its long awaited, massive, systemwide software update, known as “The Merge,” a first in a series of planned upgrades and expansion. Recognized by industry leaders as the most significant and complex upgrade in the history of cryptocurrency, the move from the original proof-of-work (PoW) mechanism to proof-of-stake (PoS) will make Ethereum more scalable, efficient, as well as reduce Ethereum’s energy consumption and carbon emissions by nearly 99.95%.1
For anyone involved in the world of cryptocurrency, understanding the difference between proof of work (PoW) and proof of stake (PoS) is essential. PoW and PoS are two different algorithms that are used to verify cryptocurrency transactions and achieve distributed consensus.
PoW was first used by Bitcoin and is still used by many other cryptocurrencies today. With PoW, miners compete against each other to solve complex mathematical problems in order to verify transactions and add new blocks to the blockchain. Pre-Merge, Ethereum relied on extensive amounts of computational power.
PoS is vastly more energy efficient as it doesn’t require miners to run expensive hardware. Instead, users who hold ETH in their wallets can “stake” their coins by putting them up as collateral to verify transactions and add new blocks to the blockchain, all while helping to secure the network.
What the Ethereum ‘Merge’ Means for Crypto Investors
Many early adopters in the technology, financial, gaming and collectibles categories have already found success building Decentralized applications (DappS) on top of Ethereum. Post- Merge could prove to have far-reaching consequences for the entire cryptocurrency landscape. It may encourage more widespread use of the blockchain as it can be a more sustainable option in the long run. Furthermore, now that Ethereum is climate friendly, developers can focus on reducing transaction fees and enabling scalability.
Ethereum traders will not feel any impact and do not need to do anything with their funds post- Merge. To be clear, there is no such thing as “old ETH”/”new ETH” or “ETH1″/”ETH2.” ETH is just ETH. Wallets function in the same way as before. No action is required, and traders still have access to any funds held in their wallet pre-Merge. Moreover, ETH is now set to become deflationary over the long term, which could result in its price decrease, making it potentially beneficial for investors to increase their purchasing power.
Although a jump in price may not be immediate, and there may be dips moving forward, the long-term probabilities of ETH do seem compelling. Of course, as always, TradeStation Crypto advises traders and investors to proceed with caution and to please do your own research (DYOR).
- ETH down more than 5% despite smooth Ethereum Merge: Yahoo Finance, September 15, 2022.
Investing in cryptocurrencies involves significant risks. See the Investment and Trading Disclosures Booklet for more information on investing and trading in cryptocurrencies.
