3 reasons why Ethereum’s price will rise with the merge

Crypto lender Celsius, hedge fund Three Arrows Capital (3AC) and Voyager Digital, another popular lending platform, have filed for bankruptcy in the past two months.

Employees have also felt the effects of the crypto-currency collapse. Coinbase recently laid off 1,180 employees, nearly a fifth of its workforce. Other crypto-currency platforms, such as Gemini, Crypto.com, BlockFi, Bitpanda and OpenSea, have followed suit, cutting 5 to 20 percent of their workforce or announcing a hiring freeze.

But it’s not all bad news. Ethereum, the second-largest digital currency, is radically changing the way it operates, becoming greener and more scalable. Known as the merge, some say it’s the biggest event for the crypto this year. It is currently scheduled for September 19.

What is the merge?

According to Ethereum.org, the merge is “the joining of Ethereum’s existing execution layer with its new proof-of-stake consensus layer… It eliminates the need for energy-intensive mining and secures the network using the ETH put into play. A truly exciting step in realizing Ethereum’s vision – more scalability, security and sustainability.“

What does this mean for the average person? Currently, Ethereum is operated by proof-of-work, which means you need very powerful and power-hungry computers to operate Ethereum. The merger will move Ethereum to proof-of-stake, which means Ethereum owners put their coins on the line to validate transactions and power the network.

With this upgrade, Ethereum will become significantly more environmentally friendly. Ethereum’s energy consumption will be reduced by 99.95% and it will use much less carbon to be more secure. As part of the proof of stake, Ethereum is secured by validators who put their coins in play instead of miners.

How will this impact the price of Ethereum?

While crypto-currencies can be volatile, the upcoming merger can potentially impact the price of Ethereum.

Proof-of-stake

In proof-of-work, miners were incentivized to have more powerful computers to earn rewards from the blockchain. In proof-of-stake, people with the most crypto-currencies get the most rewards. People will have an incentive to accumulate and hold as much Ethereum as possible.

Increased efficiency and scalability

Unlike bitcoin, Ethereum serves as both a decentralized currency and a storage for computer code that can be used to power contracts and financial applications. The merger will, in theory, make Ethereum more efficient and faster. This will shorten processing times, especially during peak network usage. As a result, more businesses may start using Ethereum because of its greater efficiency and scalability.

Deflationary

After the merger, the number of Ethereum tokens issued could drop by 90 percent, according to Aaron Samsonoff, chief strategy officer and co-founder of InvestDEFY, a creator of structured crypto products. This will make Ethereum deflationary, meaning the total supply of Ethereum will slowly decrease over time. This would reduce the supply of Ethereum, creating upward pressure on prices while demand increases or stays the same.

The combination of these issues can potentially have a significant impact on the future price of Ethereum. The more coins you put into play, the more rewards you earn. This, combined with the new deflationary nature of the Merger, will reduce the supply of Ethereum. In addition, there may be greater institutional demand for Ethereum, also increasing the price.

Investors should do their own research before investing in cryptos. Due to its high volatility, you should only invest what you can afford to lose.