Ethereum’s merge is the most anticipated upgrade that the crypto community has been waiting for. According to an interview by Vitalik Buterin , the founder of Ethereum, outlined that, “The deep changes to the network will include updates to its monetary policy and token issuance, its security model and its transaction inclusion process”.
1/ Ethereum’s elegant monetary policy:
High economic activity (high fees) -> ETH is deflationary to lower demand
Low economic activity (low fees, signaling “recession”) -> ETH is inflationary to stimulate demand
Maybe monetary policy can be programmatic vs relying on a Fed https://t.co/ZwuGXmbJTy
— VivekVentures.eth 🦇🔊🐼 (@VivekVentures) July 15, 2022
Vivek Ramani, Ethereum Researcher mentioned in an interview with Cointelegraph that the transition of Ethereum from ‘Proof of Work’ to ‘Proof of Stake’ will potentially surpass Bitcoin in crypto ranking.
He believes that Ethereum will not surpass Bitcoin just because of the change in the consensus mechanism but also because the monetary policy will create a ‘Supply Shock’. Once the merge is complete the network will become environmentally sustainable. One of the important factors of Ethereum’s merge is that the transition will make ETH a deflationary with fee burn, while Bitcoin will remain an inflationary crypto asset. In addition to network fee reduction, with every halving event, the inflationary rate will further decrease in case of Ethereum.
Bitcoin will continue to have its Gold status in terms of asset valuation, Ethereum on the other hand will have a massive adoption rate. The merge won’t change the Ethereum’s gas fee challenge faced by users which may still be a challenge, but Ethereum will majorly rely on layer 2 platforms for scaling solutions, Ramani said.
The merge will not affect the gas fee on Ethereum but will act as a settlement layer for layer 2 blockchains which primarily will take care of the scalability of the projects. This development further evoked a question in the community if Ethereum will depend on layer 2 protocols, will the value of ETH be surpassed by these layer 2 protocols? To which Ramani said, This contradiction is zero sum because ultimately layer 2 protocols – the zk roll ups will scale these projects faster but their settlement will be done on Ethereum’s settlement layer. So, this is a win-win for Ethereum 2.0 as well as the zk roll up protocols built on the blockchain as layer-2.
According to the researcher, Ethereum 2.0 and Bitcoin could be complementary from a store of value perspective. Ethereum’s store of value and store of exchange both are more competent compared to Bitcoin. Ethereum offers a staking yield to investors to earn passive income on their ETH holdings making the asset have more economic value.
Ethereum’s Mainnet will merge with the Beacon Chain proof-of-stake system marking the end of the POW consensus mechanism and will open the stage for the network’s new Proof of Stake mechanism ‘Sharding’.
Source: Cointelegraph, Ethereum.org
Additional Read: Why is Ethereum Price Surged More than 50% from its Lows?