The great Ethereum merge has happened, what now?

Web3 may just have experienced one of its most pivotal moments. If you’ve been on any tech website, or even just Google days before September 15 you most likely would’ve seen stories and information about “the merge”.

The merge was a long-awaited upgrade to the Ethereum blockchain that was aimed at reducing “99.95 percent” of the blockchain’s emissions.

According to Leigh Travers, CEO at Binance Australia, this move to proof-of-stake (POS) was a “Y2K moment” for the market and will be looked back upon as a pivotal moment in the inception of Web3 companies.

He explained, “Ethereum has been a preferred blockchain for many projects in recent years and has built up into a plus $100b network, so there were literally billions riding on the success of The Merge.

“This doesn’t even count the value of applications and NFTs hosted on the Ethereum blockchain which after a successful merge, will create a positive tailwind for all Ethereum stakeholders. For other Layer 1’s, they will be looking to replicate the smooth transition that the Ethereum community was able to manage for the most significant technological upgrade in crypto in the last few years.”

Since the merge occurred nearly a week ago, the price of Ethereum has dropped by 20 percent from US$1700 to $1330. But experts aren’t worried, as the merge was for a long-term impact, not a short-term impact.

Travers told Digital Nation Australia, the short-term risks are based on the potential of inflated expectations.

He said, “If the majority of traders were expecting price appreciation post-Merge and positioned to sell while users were expecting lower Ethereum network fees on day one after the merge, then we are going to be in for a period of negativity.

“With the merge now complete on September 15, there is a reduced risk opportunity now available for market participants. From the fundamentals; risks are lower from a technology risk profile, with POS (proof-of-stake), risks are lower from a carbon efficiency angle and prices are lower too so that should become interesting for sidelined players who believe the future of transactions are internet native.”

The merge occurred when Ethereum’s existing execution layer merged with the new proof-of-stake (POS) consensus layer, the Beacon Chain.

This merge transfers the responsibility of block production to the validators operating on the Beacon Chain. The Beacon Chain has been operational since December 2020 running in parallel with the existing Ethereum proof-of-work chain.

Lachlan Feeny, founder and CEO of Aussie blockchain development agency Labrys explains the importance of this merging of platforms.

He said, “It's certainly the biggest Ethereum upgrade by far, is widely considered the biggest upgrade of any blockchain ever, and many people would argue that it is up there with the creation of Bitcoin and blockchain itself.

“For the last seven years, engineers have been so focused on the merge it has come at the expense of other upgrades to the blockchain. Now that the merge is complete, engineers can focus on a long-term roadmap of exciting upgrades, the collective impact of which will be huge.”

Impact on gas fees

In simple terms, Gas fees are payments made by users to compensate for the energy consumption made to process and validate Ethereum transactions.

As the merge was made to reduce energy consumption, this will have an impact on gas fees but not until next year.

Travers said, “The cost to use Ethereum is a function of the amount of block space available rather than the consensus mechanism being PoW or PoS. It’s unlikely we will see a fall in gas fees until blockchain sharding is implemented in 2023. With more block space available there will be a reduction in the gas fees users and applications incur.

“With Binance Australia being the world’s first ESG reporting digital asset exchange, we lean towards this movement with framework-led initiatives to enable and further enrich positive impact on a global scale.”

“A Y2K moment”

Binance's Travers said in the next six to 12 months, the sector is looking for decentralisation to be a stronger theme and the more nodes and validators there are globally in both number and geography, the better the outlook for Ethereum as a more sustainable global transaction network.

 He explained, “For investors taking the route to be a validator, which is providing transactional verification services and locking liquidity in exchange for a circa 5 percent rate of return (in Ether), they are likely feeling better about their decision based on a successful merge.

“For entrepreneurs looking to build global applications, they should be more confident in the future of Ethereum to handle the transactions required to be a global settlement network.”