Experts believe that it carries numerous long-term advantages for the ‘cryptos’
The cryptocurrency market is celebrating. This Thursday, September 15, the estimated deadline for the Ethereum blockchain to reach the conditions that allow it to migrate to the proof-of-stake consensus model has passed. The expected event, known as ‘The Fusion’ (‘The Merge’), because the main chain has effectively been merged with the Beacon test network, has been activated and carried out successfully when reaching the total terminal difficulty (TTD ) 58,750,000,000T. The price action of ether (ETH) is barely fazed by the news and doubts about whether it will be the catalyst for the next bull run hover over the crypto space.
Firstly, the ‘Paris’ update has been deployed on the so-called execution layer – the ethereum mainnet – and 13 minutes later, Ethereum has abandoned the current proof-of-work model. The consensus layer, as this network is also called where all the developments for the ‘Merge’ have been taking place, has joined the execution layer, which has completed the migration and made cryptocurrency mining obsolete for ETH.
This transition implies that Ethereum begins to reduce its energy consumption by 99%, which arouses a great feeling of optimism among experts and investors, to the point that it is contemplated that the price of ether will eventually exceed that of bitcoin. But analysts believe that until this ‘flippening’ occurs, the road is long and not without risks.
To begin with, “‘The Merger’ is such a complex technical event, involving not just a large company, but an entire decentralized network, so there are reasons to think there may be problems,” says Marcus Sotiriou, an analyst at GlobalBlock. The vast majority of nodes have been updated and both decentralized applications (DApps), such important connection providers as Cloudflare, as well as cryptobrokers have closed ranks with the ethereum update. However, there are other dangers.
“For example, many people in the ecosystem might not be ready to process the new string, as they haven’t updated their software. Also, some of the APIs might break in a way that many can’t predict,” Sotiriou details.
Julius Baer analysts believe that the best possible scenario for the ‘crypto space’ is for this event to unfold as a “non-event”, where “the protocol transition goes smoothly and without any hiccups”, they indicate. “Any other outcome would likely cause heightened volatility in the cryptocurrency space, not just in the price of ether,” they add. And they cite how investors have been positioning themselves short in ETH futures, as a hedging mechanism against a failure of ‘The Fusion’.
WHAT TO EXPECT IN THE MEDIUM AND LONG TERM?
Broadly speaking, pundits expect choppy price action if ‘The Fusion’ fails, but many forecasts point to $2,000 price levels as early as this month. The presumption is that the Ethereum blockchain will eventually fix all eventual setbacks and the transition will be over.
The long-term implications, thus, “will be hugely beneficial for Ethereum and the crypto space in general,” says Sotiriou.
“With the climate crisis at the top of the global agenda, the fact that one of the largest blockchains is more respectful of the environment could lead to an increase in adoption rates,” they say from Foerex Suggest. This, “coupled with the fact that cryptocurrency mining will now be significantly more expensive for many, given the huge spike in energy prices in the last year, should spark some interesting moves in the ‘crypto’ space in the next few months,” they say.
Precisely, an investigation by Forex Suggest from earlier this year revealed that a single transaction on the Ethereum blockchain produced more than 42,1841 kilos of CO2 emissions. This means that the total of the transactions carried out last year produced almost 22 million tons of CO2 emissions that would require 109.8 million trees to offset them. Therefore, if energy consumption is reduced by the predicted 99%, 108.7 million of those trees will be saved over the next year and CO2 emissions will be reduced to just 222,222 tons.
ESG narratives represent one of the biggest hurdles for institutional investors entering the cryptocurrency industry, “so ‘The Fusion’ could alleviate this concern and improve the reputation of the entire asset class.” the GlobalBlock expert.
ETH investors who participate in transaction validation and lock their ether for that purpose will also receive a return of around 5%. This means that the entire decentralized finance (DeFi) sector will flourish as investors will have a method to price risk. “Also, institutional investors love cash flow, so being able to receive a lucrative return is another advantage that heightens the appeal of ETH,” Sotiriou believes.
In short, experts emphasize that ‘The Fusion’ will spur institutional interest in this asset class. They say it could be a catalyst for institutions to enter the cryptocurrency space en masse over the next 5 years.