Ethereum: Why you should be paying attention 💸

If you’re reading this post, you’re about to get blessed with some information that has the potential to set you up financially for generations to come (in my humble opinion).

Remember in my Crypto Basics 101 post when I said that an upgraded version of Ethereum was coming later this year?

Well, it’s happening. The upgrade is expected to occur sometime this year—could even be as soon as a few months from now. I’ve seen chatter on social media and media outlets have highlighted it, but I don’t think there’s nearly enough information being spread to the masses. So, let me break down a few things in this post to make sure all of MY subscribers are in the know. Here’s what I’ll cover:

• What is Ethereum Merge?

• Why should this matter to you?

• Some misconceptions

What is Ethereum Merge? 🤔

In the Crpyto 101 post, I didn’t dive into the mechanisms behind Ethereum because, from personal experience, I know that it can feel really technical and slightly overwhelming. However, to fully get the implications of this upcoming merge it’s important to have a general understanding. CNN does an excellent job of breaking down what this merge is all about! Check it out below:

“Ethereum currently relies on what’s known as proof-of-work, in which miners must complete complex puzzles to validate transactions and create new coins. This process requires a huge amount of computer power, and is often criticized due to its environmental impact. 

With the planned upgrade, Ethereum is moving to proof-of-stake, which would let users validate transactions according to how many coins they contribute, or stake. In return for staking more coins, users have a higher likelihood of being chosen to validate transactions on the network and earn a reward.

“The Merge is Ethereum's most important upgrade to date,” David Lawant, director of research at Bitwise Asset Management, told Fortune. “Every crypto network needs to decide how it chooses, in a decentralized way, who gets to propose a new block of transactions that all participants will later validate and add to the blockchain. The Merge will mark Ethereum's shift from proof-of-work to proof-of-stake.”

Currently, Ethereum has both a proof-of-work and proof-of-stake chain running in parallel. While both chains have validators, only the proof-of-work chain currently processes users’ transactions. Once the merge is complete, Ethereum's blockchain will shift fully to the proof-of-stake chain, called the Beacon Chain, making mining obsolete.”

Why should this matter to you? 🙇🏽‍♀️

Two key reasons:

Ether becomes a deflationary asset (!!!)

"Following the merge, the amount of ETH issued is projected to drop by 90%, which would lead similar levels of fees to reduce ether’s supply by as much as 5% a year," according to CoinDesk.

What does this mean though, in basic terms? I’ve got you.

Basically, each year the supply of Ethereum will decrease by ~5%. In turn, the value of Ethereum goes up each year. This could be HUGE, especially as more use cases and utility are created for Ethereum. Higher demand, dwindling supply. I don’t give financial advice…but I’m personally very invested (in more ways than one) in how this plays out. 🚀

Ethereum is way more environmentally friendly 🌿

“The proof-of-work consensus mechanism was pretty problematic as it related to the environment. As the number of transactions in the blockchains increases, the computational power required to solve those puzzles also increases—high computational power results in increased energy consumption. This became a problem as the primary source of energy is fossil fuels, which are drivers for global warming. The Ethereum Foundation decided to change the consensus mechanism to PoS, which does not require high levels of computational power and thus energy.”

Some Misconceptions

As I was doing my own research on Ethereum Merge, I found this article that brought up some great clarifying points I thought would be helpful to share:

The merge won’t create a ‘new’ Ethereum token.

Ethereum’s cryptocurrency, Ether (ETH), will remain the same. This fallacy surrounding a “new” token is why the Ethereum Foundation issued guidance in January regarding how the merge should be referenced. In the past, the merge was referred to as “Ethereum 2.0” or “Eth2.” But, in January, the Ethereum Foundation and the blockchain’s core developers announced that this labeling would be phased out, as many scammers were trying to convince users that there would be a new “Eth2” token separate from ETH, which is false.

The merge will not lower Ethereum’s fees. 

Many people hope that this change from proof-of-work to proof-of-stake would cause the price of “gas fees” to decline, since these fees can sometimes add hundreds of dollars to the cost of processing Ether transactions depending on how congested the network is. But that won’t happen unfortunately :(

There's no set date for when the merge will happen.

Despite a lot of speculation, there is no official timeline for the merge yet. Some predict it might happen this summer, but it’s important to only rely on the word of the Ethereum Foundation regarding confirmed timing. The unknown timeline is due to how much preparation is required for the merge to take place. After all, the success of the merge is a big deal because there’s a lot—including a great sum of money—relying on Ethereum. It not only powers Ether, the second largest cryptocurrency, but also supports popular decentralized finance (DeFi) applications and non-fungible tokens (NFTs). 

This week’s recommended action: Do additional research on Ethereum Merge!

Again, I do not provide financial advice, but if I had to place bets on one major cryptocurrency, it’d be ETH. I’d also review my Crypto Staking 101 post.

According to Coindesk, ether staking yields are likely to be in the range of 10% to 15%. Blockchain analytics firm IntoTheBlock expects the yields to be higher than the U.S. consumer price index, which stood at a four-decade high of 7.9% in February.”

Finally, check out this video starting at 7:31 that helped break down the concepts for me!

& here’s a Twitter thread that helped me too!

If you made it to the end, you’re a real one. I hope this was helpful!!

Kendall