What’s “The Merge”? The merge is when Ethereum transitions from proof-of-work (PoW) to proof-of-stake (PoS). This will end ETH mining, reducing 99% of its power usage
But that’s not all the merge will do.
Will it Lower Gas Fees?
Gas fees are caused by network demand. Switching to PoS has little impact on demand so gas fees won’t change. This means Layer2 solutions are still needed post-merge and there is a lot of great L2s to invest in!
So, Why Merge?
ETHs overall goal is to become more scalable, meaning lower gas fees, faster transactions and more transactions per second. The merge is an important step towards the ultimate goal of improving scalability and it paves the way for what comes next.
What Happens Next?
In 2023 we get sharding. Think of sharding as splitting the entire network into pieces called shards. This means that each node doesn’t need to maintain the entire network but its own shard. This increases transaction speed and cost.
Will ETH Flip Bitcoin?
The ETH merge won’t flip Bitcoin right away but long term it creates a scenario in which flipping Bitcoin is possible. Some even argue that it is inevitable. Let’s look at why.
Mining rewards currently create 13k ETH daily. Post-merge staking rewards create only 1.6k ETH daily. At 16 gwei average gas pirce 1.6k ETH is burnt daily, bringing inflation to 0. With higher gwei we get deflation and deflationary ETH is BULLISH.
Many institutions won’t touch BTC due to its energy usage. ETH already uses less energy than BTC. The merge reduces it another 99%
Institutional adoption of Crypto is needed for long-term growth and post-merge ETH becomes attractive to institutions.
Post-merge ETH staking yield should increase 50%-100%, bringing it to 6%-8%. ETH is seen as a safe long-term hodl in crypto, almost on par with Bitcoin. With staking rewards soon to far exceed BTC many people will choose to hold ETH over BTC!
Finally, Bitcoin doesn’t really have smart contracts. To attract businesses to move on-chain they need to be able to build on-chain. This is the biggest limiting factor of Bitcoin. It is a store of value, but for now, that’s all it is. Smart contracts allow many things, such as NFTs, safe transactions and other apps like crypto sportbooks.
ETH has the potential to flip Bitcoin! Ethereum isn’t even 50% complete. When it gets sharding and all the other features that are coming, there is little reason why it wouldn’t flip it. Unless Bitcoin becomes PoS and gets real smart contracts too.
This is all the reasons why ETH could flip BTC after the merge. Be sure to check out our other articles on all things crypto related.