Ethereum Merge to boost crypto sentiment, encourage mainstream adoption: Experts

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Ethereum switched from Proof of Work (PoW) to Proof of Stake (PoS) last week, greatly enhancing the global crypto and Web3 communities. This long-planned action has been hailed as historic since it will use 99.95% less energy, which has been a major global issue.

Unlike the high-energy-consuming PoW method of solving mathematical puzzles to mine tokens, PoS involves users, or validators, in this case, depositing their holdings (stake) and locking them on the blockchain to create a block that validates new transactions and blocks. So it's a consensus mechanism in which validators take over the task of creating blocks from miners.

On September 16, at Moneycontrol's Twitter space session, cryptocurrency experts discussed how they think Ethereum Merge will affect the global ecosystem and whether it will get more adoption.

“Ethereum used to operate through miners mining and validating transactions and in return getting rewarded. This required a lot of mining equipment or rigs which consumed a lot of energy, a concern for many. Now instead of these rigs, it will require a capital validator. Essentially, Merge will solve the problem of energy consumption,” said Sharan Nair, co-founder of PYOR Edge.

He added that for Web3 and crypto builders, this is the first step in the direction of scalability. “For Web3 to really take off, it needs to handle a lot more transactions in a more cost-efficient and sustainable way so as to reach the masses.” The Merge will immediately not reduce the gas fees but eventually, with more stages, it is expected to come down.

Gas fees are paid in Ethereum's native currency ether (ETH). It refers to the fee paid to conduct an Ethereum transaction successfully.

Ethereum is set to receive additional updates, including Surge, Verge, Purge, and Splurge, which are expected to add more capabilities that will make it more scalable and sustainable. While these updates are expected to be completed by 2026, experts believe the impact on the ecosystem will be felt later rather than immediately.

Experts have also hailed the fact that it will lead to more mainstream adoption as corporates will more likely start investing in the space.

“It will change the perception of how corporates view crypto. Earlier, the companies could not meet their ESG (environmental, social and corporate governance) compliance when they added Bitcoin to their balance sheet, which was a major reason why many did not adopt Bitcoin. But, now Ethereum is a credible alternative to that,” said Gaurav Dahake, founder of crypto exchange Bitbns.

Vikram Subburaj of Giottus added to this by saying that Ethereum needs to prove much more that it is accomplishing its stated goals while Bitcoin is seen as a much more stable coin. From the retail investor’s standpoint it would not be challenging but for crypto enthusiasts, it will be a fight.

But in his view, the Merge has rekindled interest in the crypto business, which has been weighed down by the bear market, reports of layoffs, and bankruptcy.

Change in the pricing of Ether 

Over the weekend, Ethereum, the second largest cryptocurrency, was trading above $1,400.

According to experts, the reduction of ether in the new supply will have a positive long-term impact. While there was no immediate impact on pricing or trading because much of the positive sentiment had already been priced in.

Additionally, experts say that with the Merge, Ethereum has built credibility as it was an open-source project with hundreds of developers across the world working on it remotely. This could pose a tougher challenge to other chains like Solana, Tron, among others.

“Despite the other existing chains and new chains being built, Ethereum would occupy 90% of the blockchain ecosystem in terms of developer activity and actual total value locked and transaction throughput,” said Dahake.

However, this is seen as a win for Ethereum and comes at a critical time for the crypto ecosystem.

“The next few years will also be very critical for the ecosystem,” said Subburaj.

Concerns around Ethereum Merge

One of the concerns raised about the Merge is that the validators will make it more centralised, defeating the purpose of decentralisation.

“But, as more people start sticking to Ether and join it, it would become easier with the tools and so on, to get back to decentralised scale,” said Dahake.

While the concerns around validators of the new supply of Ether remain to be seen, Sathvik Vishwanath, co-founder and CEO of crypto exchange Unocoin said that retail investors do not have to be concerned about it.

Experts say that over the last few months, many drew co-relation between the equity markets and crypto which was dissolved earlier. But with more crypto updates, the market will see lesser correlations.

However, experts are definite that only with the proof of PoS working mechanisms, things will start changing for the better for crypto and Web3.

In case you missed the discussion, catch the whole conversation here.