What Are Ethereum’s Prospects after the Merge?

Ethereum is the talk of the entire crypto market at the moment. The asset has managed to break one milestone after another this year alone, and while the market remains in a downturn, it will undoubtedly be one of the assets to look forward to when things flip bullishly once more.

The biggest news surrounding Ethereum right now is its Merge. The upgrade, which will signify the final shift towards Ethereum’s proof-of-stake (PoS) consensus algorithm, is expected to be perhaps the biggest upgrade to the Ethereum blockchain in its history. And, as developers continue to work out the details investors are also trying to grapple with what this could mean for the broader market landscape.

The Merge: What And Why?

As explained earlier, the Merge will signify the Ethereum blockchain's final shift to PoS. The blockchain is one of the oldest and arguably the most popular in the market, but it was built using the proof-of-work (PoW) consensus algorithm. This meant that the blockchain had to rely on mining, just like Bitcoin.

Over the years, Ethereum has grown into a global blockchain network with multiple use cases. And, as the application of blockchain technology has soared, so has the functionality of Ethereum itself. Today, millions of developers use Ethereum, and the blockchain is home to hundreds of thousands of platforms. From traditional businesses to fledgling new fields such as decentralized finance (DeFi) and non-fungible tokens (NFTs), Ethereum’s footprint is everywhere.

This increased popularity has been a blessing and a curse. On the one hand, it has made Ethereum incredibly popular. However, it has also led to scalability issues and rising gas fees.

Ethereum 2.0 is expected to be a solution to all of this. The evolution will bring several benefits to the blockchain, including sharding, a way of improving its scalability. With sharding, the Ethereum blockchain is expected to handle up to 100,000 transactions a second, up from about just 30 at the moment.

Just as well, the move to PoS means that the Ethereum blockchain could easily cut its carbon footprint.

According to some estimates, the blockchain’s carbon footprint could be reduced by up to 99.9% once this update is finished. And, the Merge is the final stage for this.

Analysis: What Will the Merge Do for Ethereum?

Currently, the Merge is on its last leg and expected to come anytime soon. However, with developers being excited about the prospect of the Ethereum blockchain having a new beginning, it is also worth looking at what this development could mean for the blockchain in its entirety.

The first, and perhaps most significant, note is that the Merge could easily trigger a rally in the Ethereum price. As the market sentiment shows, the crypto space is currently looking for something bullish to kickstart the next run. And, with the market being beset with bad news for the past few months, a successful Merge should help to wipe out some of this negative sentiment and usher in an era of gains.

At the same time, the Merge’s bullish potential stems from the fact that it will improve the Ethereum blockchain on several fronts. By improving scalability and cutting transaction fees, the Merge should make the Ethereum blockchain roe useful, which, in the long run, will trigger a rally in the price of ETH and help it to grow even more.

Ethereum’s year-to-date chart shows the asset suffering from a 58% drop since the year began. If it hopes to erase some of these losses, then it would need to start from somewhere. The Merge, if successful, presents a possible starting point.

Macro Factors Still Strong

That said, it is worth noting that a rally fueled by the Merge isn’t a sure thing. The crypto market has been dealing with significant losses for months, and the possibility of the Merge simply erasing all of that is slim.

This week alone, the Federal Reserve published numbers on the Consumer Price index (CPI). While analysts had expected a softer figure, the report showed that headline inflation in the United States jumped by 0.1% month-over-month. And, even though gas prices had fallen to months-long lows and the housing market appears to finally be cooling, core inflation still jumped by 0.6% in August. Year-to-year inflation sits at 8.3%, showing that the government still has a lot of work to do to fix the economy.

The report immediately sent markets tumbling. The Dow slid by 2.6% on the day, while the S&P 500 and NASDAQ Index fell by 2.9% and 3.6%, respectively. With the crypto market being incredibly correlated to stocks, coin prices slumped just as well. Bitcoin pulled back 9%, while Ether dropped by 7.28%.

Macro factors are expected to keep playing a significant role in determining the prices of cryptocurrencies over time. And, with the traditional economy still struggling, it means that we could see a while before the gains coming from the Merge and others start to show.

Of course, this isn’t necessarily a bad thing. The Merge presents an opportunity for developers to build and ideate as they should. And, when things start to cool and we enter into another rally, the Ethereum blockchain would have become much better and stable for developers across the board. This should lay the foundation for more resilient gains.