What does Ether Capital think about the Merge?
To sum it up, we are very bullish on Ethereum’s switch to PoS and believe there’s significant upside for both ETHC shareholders and ETH holders.
When we started Ether Capital in 2018, we bet that Ethereum would be one of the greatest assets of our generation; something we still believe to be the case. The move to PoS will further solidify Ethereum’s position as a global clearing house and settlement layer for a wide-range of activity.
This is an inflection point for the entire industry and we expect more institutional capital to enter the space that has been sitting on the sidelines. This factors into our decision as a company to focus on staking more of our ETH and building infrastructure to support Ethereum’s robust ecosystem. Our shareholders will also benefit from having direct access to cutting-edge developments taking place on the network with a board and management team made up of traditional finance executives, crypto natives and venture capitalists to guide the decision making process.
As we mentioned above, another key benefit of the Merge is that long-term ETH holders will be able to put their assets to work by staking. Despite currently needing 32 ETH and sufficient technical knowledge to run an Ethereum validator, ETH holders can join a staking pool and capture a yield without having to fork out US$52,000 (calculated at today’s price).
ETH will also become a deflationary asset post-Merge as issuance drops significantly. Bitcoin’s 21 million supply cap has long been a selling feature for the cryptocurrency that investors have put their weight behind because of supply transparency. With a drop in ether issuance, increased staking deposits and a portion of transaction fees being destroyed (introduced in an Ethereum upgrade called EIP-1559 that was implemented last year) we could see upward pressure on the price of ETH. Some analysts also predict we are not far off from the “flippening”, when Ethereum surpasses Bitcoin in terms of market capitalization.
The eco-friendly curb appeal that Ethereum will soon offer under PoS is also likely to lead to more institutional and retail adoption, especially by those with strong ESG mandates. Not to mention, security enhancements as a result of the Merge will help prevent attacks that spam and crash the network — something Ethereum’s co-founder Vitalik Buterin highlighted during a crypto conference in Paris in July. This alone could lead to more use cases and developer activity based on the security properties of Ethereum once the Merge is enacted.
Competing PoS blockchains will also have the added challenge of trying to find new ways to steal the spotlight away from Ethereum that end users and developers have already decided is the platform of choice. With the addition of roll-ups and other scaling solutions that could lower the cost of transactions, it makes it more difficult for rival Layer-1 blockchains to maintain their value propositions.
What comes next?
Continual upgrades including staked ETH withdrawals and scalability will be the primary focus for Ethereum developers over the next several months. The community has a knack for adopting peculiar terms for projects or events that take place in the cryptosphere. The “Surge”, “Verge”, “Purge” and “Splurge” are future upgrades and part of Ethereum’s long and complex roadmap to Ethereum 2.0 — an enhanced blockchain that will have a secure base layer and the functionality to support a wide-range of activity. Infrastructure quality and security are two things that Ethereum developers have never compromised on.
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This blog post has also been published on our Medium page that you can access here: https://medium.com/ether-capital-blog/everything-you-need-to-know-about-the-merge-61515b32203d