Despite their best efforts, Ethereum’s most momentous goal, The Merge, is rapidly approaching. This agenda will take place on September 13 – 15. According to what Vitalik Buterin, Ethereum’s co-founder, said on Tuesday (6/9). Ahead of its launch, there was a lot of information milling about The Merge. However, as smart investors, we must verify the validity of the information. Therefore, to make sure you don’t fall into misconceptions about The Merge, in this article NOBI will thoroughly explore the myths and facts about Ethereum Merge!
The Ethereum Merge Explained
The Ethereum Merge, which investors and the Ethereum community have been anticipating, will take place within the next 1-2 weeks. This historic event in the blockchain technology industry represents a significant shift for the Ethereum protocol as well as the advancement of blockchain technology in general. But, basically, what is Ethereum Merge? What information about Ethereum Merge is true and false? What is the analysis and reasonable expectation on the price of Ethereum that will be achieved from this historic event?
At its core, Ethereum Merge is a network consensus protocol switch from Proof-Of-Work (PoW) to Proof-Of-Stake (PoS). This consensus protocol transition changes the way the Ethereum mechanism determines network nodes that will validate transactions and create blocks (data input to the blockchain). Whereas previously in PoS, the determination of the network node that validates and creates blocks is determined by the computing power of the participating network nodes, then in Proof-of-Stake, this is determined by the amount of crypto ETH (stake) owned by the node. The more ETH (stake) a network node has, the more likely it is that the network node will validate transactions and create blocks, and get rewards in the form of ETH from the protocol.
Popular Myths & Facts Surrounding “Ethereum Merge”
The Bellatrix upgrade was successfully activated at epoch 144896 in Beacon Chain at 11:34 UTC Tuesday (6/9). Furthermore, Ethereum will undergo several other upgrades necessary to confirm this historic process a success. The following enhancements will result from the Ethereum Merge’s success:
1. Decrease in Energy Consumption
The Ethereum protocol currently consumes the same power as Chile and has a carbon footprint on par with Hong Kong. This is due to the Proof-of-Work consensus protocol that uses computing power for block creation competitions and computers/network nodes require electricity to operate. After the Ethereum Merge is done, the network nodes will use ETH (stake) as a proxy to participate in transaction validation competitions and block creation on the network. Predictions from stakeholders and research entities in the blockchain industry predict that the energy consumption of the Ethereum protocol will be reduced by about 99,95%.
2. Changes to Ethereum Monetary Policy
Ethereum monetary policy is a set of tools or regulations used by Ethereum to control the overall amount of ETH in circulation, promote economic growth, utilization, and development in the Ethereum protocol. The Merge will significantly change Ethereum’s monetary policy. The block creation reward on Ethereum Proof-of-Work is now 2 ETH per block, the new Ethereum monetary policy on Proof-of-Stake will later reduce that reward by 90%. This reduction is referred to as the “Triple Halving”, as this will cause the supply of new ETH in the market to drop drastically every day, which means less selling pressure in the long term. This change in monetary policy is very good in the long term for Ethereum’s own price appreciation.
3. Transaction Throughput Increase
Blockchain is a decentralized database. The speed of any database system is measured by transaction throughput, which is usually expressed in the number of transactions/second. Where the higher the throughput, the more efficient and effective the database is.
However, Ethereum Merge will not increase the transaction throughput of Ethereum. Transaction speeds on Layer 1 Ethereum will be relatively the same as before The Merge. What we need to know about this is that the Ethereum Merge is Ethereum’s first step toward reaching 100,000 transactions/second. Where according to Ethereum’s roadmap, this target of 100,000 transactions/second can only be achieved if Ethereum successfully completes 4 more stages of upgrading after the Ethereum Merge.
4. Gas Fee Reduction
Gas fee is a fee for making transactions on the Ethereum protocol, which is because Ethereum’s transaction capacity (throughput) is still relatively limited at this time, this gas fee can increase drastically during busy periods on the network. The Ethereum Merge is a change in the consensus mechanism, not an increase in the network capacity of Ethereum, while the gas fee is a function of the demand for transactions on the Ethereum protocol in relation to network capacity. In addition, the Ethereum Merge will also not change or lower the gas costs of Ethereum.
Ethereum Merge timeline and progress
If everything goes according to plan, all Ethereum developers predict that the Ethereum Merge will occur on September 15, 2022. However, all that can still change. Then who would have thought, it turns out that the Proof-of-Stake development of Ethereum has been planned and carried out since 2015. So, it is not surprising that Ethereum developers are finally forced to postpone this important agenda in order to ensure the Ethereum Merge process can run smoothly.
There are 2 important upgrades that must be done before the Ethereum Merge can go live. The first upgrade is the Bellatrix upgrade, whose function is to enable Ethereum Merge in the Beacon Chain. After that, is the Paris upgrade, which will serve to remove all dependencies on the Ethereum protocol from the Proof-of-Work consensus mechanism.
ETH Price Action Analysis, Ready for the Moon?
In fact, the news regarding the Ethereum Merge did indeed inject a lot of positive sentiment into the market, so that market activity became more attractive and confident. After the successful implementation of Proof-of-Stake on the Goerli testnet, the price of Ethereum briefly touched $2,000. However, the price increase was very brief, as the price then dropped again to around $1,450-1,550 levels.
The fact that the crypto market is currently experiencing winter, finally Ethereum price momentum cannot be maintained properly. And as a result, the Ethereum price movement did not succeed in breaking out of its downward trend, it is also seen that the price has the potential to continue to decline after the Ethereum Merge is successfully live.
ETHUSD – Weekly Chart
In the weekly chart, it can be seen that the Ethereum Merge has not succeeded in forcing ETHUSD to breakout. The ETHUSD price trend has decreased as seen by the presence of a large descending channel and the decline may not end before the trendline of this channel is successfully broken or a breakout.
In the weekly chart above using external Fibonacci indicators, there is a point of support in the long term in the area of 350 to 400. If the price of ETH in the short term fails to make a reversal action or does not break the downtrend, then the support area at the 350-400 level is the area the support is strong, and there is a possibility that the price will try to move towards the support at 350-400.
ETHUSD – Daily Chart
On the daily chart, you can see a Head and Shoulders pattern where the possible decline of the ETH price will correspond to the size of the head and from the arrow above, which shows the size of the head and the price target according to the previous support. Therefore, in the near future the price of ETH could drop to the 995-1056 area.
If later the decline to the 995-1056 area does occur, then when the price is already in that area, a rebound/reversal is expected and penetrates the trendline of the weekly channel. If the rebound and trend reversal does not occur, then the price might go down to the support area on the weekly chart in the 350-400 area.
Just like the network upgrade agenda by other projects in general, The Merge Ethereum is also inseparable from the controversy and optimism that surrounds it. However, of the many skeptical and optimistic beliefs that have come before The Merge agenda, the one that is most often echoed by Ethereum fans themselves is the claim that the consensus transition from PoW to PoS this time will reduce Ethereum’s energy consumption by 99,95%.
Accordingly, the Ethereum Foundation also claims that the transition from PoW to PoS will cut Ethereum’s carbon emissions to as little as 0.07 kilograms per transaction, from the current 147.86 kilograms. That is, if this scenario were to be true, then its carbon footprint would be 17,000 times more efficient than Bitcoin. However, seeing the positive and negative predictions that tend to be balanced around The Merge, is NOBI’s optimistic or skeptical?