Ethereum upgrade makes it ‘ultrasound money’ of the future: Experts

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The upgrade of the Ethereum network, known as the Merge, took place at 2:45 am EST, a landmark that the cryptocurrency world has awaited for more than five years.

The upgrade will fundamentally alter both the creation of ETH, the second-largest digital currency, and the validation of transactions on the Ethereum network, and is expected to change the way businesses view the cryptocurrency.

Before the merge, ETH was produced through “mining,” an energy-intensive process that used computers to solve mathematical equations. With the shift from the proof of work system to the proof of stake (PoS) method, people and organisations pledge significant sums of their ETH instead of generating new ETH.

Paul Brody, EY global blockchain leader, told Moneycontrol that the Merge will not affect most enterprise use-cases but will materially change how businesses view Ethereum.

“The shift to proof of stake will also signal a new era in the competition among blockchain ecosystems. The merge will solidify Ethereum’s dominance and shift the basis of competition to the Layer 2 networks that exist to help scale up Ethereum. Layer 2 networks will be needed to handle a new wave of privacy applications and high-volume transactions in supply chain and finance,” Brody said.

Scale and security

Experts pointed out that given the importance of ESG (environmental, social and governance) business practices, it was critical for the Ethereum community to move to the PoS system to avoid potential resistance to adoption by large companies, governments, and R&D organisations.

“The Merge will make Ethereum a go-to place for Web2 creators/developers and builders from all walks of life to partner with Ethereum to not only comply with socially responsible business practices but also to build and manage with great speed, scale, agility and security,” said Khaleelulla Baig, founder of KoinBasket, a diversified cryptocurrency investment platform.

The Merge is expected to be positive for Ethereum users, developers, crypto asset investors, and the broader ecosystem. It will, by some estimates, reduce the carbon footprint of Ethereum by 99 percent and clear the decks for Ethereum core developers to focus on other network upgrades including improvements to scaling, security, and usability.

“It will remove a major overhang that has been a source of angst for investors, users, and other community members since Ethereum’s founding. It will give certainty to the growing number of enterprises that use Ethereum and the Layer2 platforms that are helping Ethereum scale (most recently, Starbucks, which announced a major push into Web3). The spark has been set for the Web3 revolution and the Merge is the accelerant,” said Alex Tapscott, managing director of Ninepoint Partners’ Digital Asset Group.

The Merge is also touted to be largely impactful for non-fungible tokens (NFTs), where, according to experts, there has been misinformation about their energy consumption.

“This migration will put even the most vocal critic’s concerns to rest. The misinformation that blockchains are like public transit – even if you don’t use it, the blockchain is still running – isn’t exactly correct because that energy was going to be spent anyhow (so long as someone, somewhere was paying to use Ethereum),” Jonathan Victor, head of NFTs at Filecoin, said.

Experts said it is important not to evaluate the Merge as a singular event, but rather as a chapter in Ethereum’s larger, ongoing evolution.

The shift to PoS not only mitigates climate concerns, it also reduces the barriers for mainstream adoption of Web3, which is envisioned as a decentralised version of the internet incorporating the use of blockchains, cryptocurrencies and NFTs.

Opportunity of a lifetime

“These Web3 milestones such as light clients, single-slot finality, and usability, are being taken seriously in Ethereum’s evolution following the Merge (or ETH2). It is our continued responsibility as builders to make transacting on blockchains easier for real-world users of all experience levels,” said Marek Olszewski, president of Valora, a mobile payments and remittance app.

The Ethereum upgrade could be the opportunity of a lifetime with the possibility of the inflation rate of ETH supply being decreased by 90 percent. This massive decrease in the issuance of ETH is dubbed as the “triple-halving.”

“With the promise of a decrease in issuance and the continued burn of ETH supply, it has the potential to make ETH the ultrasound money of tomorrow,” said Walker Holmes, vice president of MetaTope. “With great opportunity comes great risk and even more speculation. The consensus of the market is weighted in favour of the ETH merger being successful. However, large-scale issues with the transition to PoS could be catastrophic for the short-term outlook for ETH price.”