Da Merge


Matt you literally wrote about Queen Elizabeth dying last week, what could you possibly have this week? Buckle up and get your turn signals ready because today we’re talking about The Merge.

If you’re anything like me, and I would say most Americans are in this matter, you know little about crypto, but own some. You threw some funny money in there during the craze, are down now, and are just holding for kicks and gigs (or to get your money back). You don’t own any NFTs, but you know enough to try and explain them to your parents.

Well, if that’s the case, then you have probably heard about the Ethereum Merge that took place on Wednesday night and has been called one of the biggest crypto events in history. So, let’s get into it.

Ethereum, the second largest cryptocurrency out there ($207B), merged its two workstreams last night to transform from proof of work (POW) to proof of stake (POS). Before the merge, a process that involved users competing to solve cryptographic puzzles was used to add new blocks to the blockchain. However, now that the Merge is complete, the Ethereum network will add new blocks to the blockchain by having “validators” put up a share of their crypto as collateral (“staking”) for the privilege of being randomly selected to verify that a new block of data is correct. Once a certain number of them agree that the block is accurate, it’s added to the blockchain (Morning Brew, 2022).

But why is this advantageous?

  • Less energy. This process will reduce the energy per transaction by 99.5%, thus also reducing the carbon emissions. Ethereum accounted for nearly 40% of all of crypto’s electricity and this reduction will actually decrease worldwide electricity consumption by 0.2%.
  • The transaction speed will increase. Things will go faster.
  • Deflationary pressure! Since Ethereum will use less energy to run, it will also pay out fewer block rewards to stakers. Estimates say the annual emission in new ETH will drop from 4.3% ->0.4%.

Tired of all the inflation talks? Let’s talk deflation! In addition to using less energy, there are 2 other factors that make Ethereum deflationary (The Milk Road, 2022):

  • EIP-1159. It’s another software update that went live last year. It burns a portion of every transaction fee and takes it out of the total supply (A.KA. less supply = increase in price)
  • There is currently ~$25b worth of ETH being staked (10% of the entire supply). This ETH will be locked for 6-12 months after the Merge. Meaning it cannot be withdrawn and sold (A.K.A less sell pressure = increase in price)

Bottom line, I like the price and adoption of ETH to both increase. I even think that Ethereum will surpass bitcoin at some point because it has more use cases. Upgrades only help, right?

Confused? Yea me too. The way I see it, decentralization is a huge movement that spans beyond just cryptocurrency, and I’m not putting a significant amount of money into it (I would be fine losing this), so I’m just going to hold, get some popcorn, and watch.

I’ve lost hope in the idea of the boomer generation adopting anything of this nature (so any change will be slower than you think), and I also think that there just aren’t enough use cases in the space right now. However, everyone says follow the money and follow the smart people, and both of those are flowing into the crypto space. If there isn’t a use case now there’s no doubt in my mind that they’ll create one if nothing else. This fact, paired with the fact that young people have seemingly bought in, make it look promising for the future.

A lot of people have been sold on the idea of fancy coins, new trading strategies, and whatever else Elon Musk says. But data shows that dollar cost averaging the two big dogs (Bitcoin and Ethereum) have outperformed many other strategies as of recently. So that’s what I’m doing. Diamond-hands.

Most of this information was taken from The Milk Road if you’re interested in a good crypto newsletter.

Let’s have ourselves a weekend.

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from, matt

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