The Ethereum Merge, Why You Should Care

The Ethereum Merge, Why You Should Care

All in all, which model is a better solution?  Proof of Work (PoW), or Proof of Stake (PoS)?

Chuck Palm – “Demystifying Cryptocurrency” Audiobook bonus chapter

On September 15, the long awaited “Ethereum Merge” happened.  So, what does that mean to you and me?  How will it effect your investment in cryptocurrencies, or future earnings in crypto?  More importantly, how will the world perceive this event, as a long-term solution to some well-earned criticism of crypto as a stable trading platform?  Let’s review the most important factors about this event, and if it has any real lasting effects on the markets.

  Do you already own any Ethereum?  If so, you noticed a pretty substantial hit of about 17% decrease in the value of ETH, the main coin on the Ethereum blockchain following the merge last week.  That being said, you may have been holding out until after this event, waiting to jump in, after the instability of the crypto market settled in, following the major upgrade to the blockchain responsible for all this hype.  Maybe you already made a major purchase of ETH to see how it would perform, betting on it to skyrocket, post-merge.  The day before the event, it was at best guess, a 50/50 proposition.

The first thing you should ask yourself is what kind of crypto investor are you?  There are basically three types.

  • Type “A” –  A stock-type investor, just interested in the value of any given cryptocurrency, and how you can earn some decent returns, or…
  • Type “B” – You follow the tech, and how the innovation that blockchain networks and NFT’s would impact development of new applications and solutions.
  • Type “C” – Just in it for a quick buck, or to test the waters, before making any real commitments.

The news is mixed for these three types, but before we get into how the Merge affected any given market, what actually happened with the largest transfer of virtual money in history?

Let’s take a look at how, and what the merge did, and how it will affect your investments, or your buying decisions for crypto in general.

The Merge – Why You Should Care

The merge was a technological throw-switch, meant to solve some current and future problems with the blockchain technology that most all cryptocurrencies run on.  Each blockchain hosts the “applications” that the coins are created on and are managed by “miners” that in turn, verify transactions, and spend tons of computer cycles to maintain the integrity of the data.  The workers, place expensive computers on the task of this maintenance often form consortiums, pooling their resources, to better serve the data requirements, and offset the costs of trying to do it alone, in their garage.  They are awarded Ethereum coins for their effort, and the more they do, the more they earn.  So, they often create massive data centers with expensive GPU’s (Graphic Processing Units, like in high-end video cards) because the crunch numbers faster.  This model was known as “Proof of Work”, and paid out pretty nicely, if you could afford to participate.

The Merge was created as an answer to this massive resource demand, and sometimes considered inequitable, as a pay-for-work model.  In this model, competition for “mining rights” of a block usually went to those who could afford the fastest, and fattest, (and most energy intensive investment), of those who were already hugely invested in the effort.  The more you spent to maintain the blockchain, the more potential earnings you could expect.  On the surface, this kind of defeats the idea of “decentralized finance”, but in the self-leveling world of competitive commerce, it was a solution that relied on simple capitalism.

What Changed?

The merge itself moved the entire Ethereum blockchain to a new network, one designed on a “proof of stake” concept and lowered the bar to entry for other workers to jump in, well, at least sort of.

 The idea was you need to be trusted and verified, and the way you proved yourself was to “stake” some ETH in an account, at least 32 (ETH) tokens, (totaling about $45,000, at the time of printing), and your stake was held in escrow, then you would be added to a random pool of workers that would be awarded about 5-10% interest, while they processed a much more energy efficient block, about 95% less than the previous model.  Of course, you could join up with other miners, and work for the same, albeit smaller share of the new tokens, but you can see how even though expenses were less, so are the potential rewards. 

All in all, which model is a better solution?  Proof of Work (PoW), or Proof of Stake (PoS)?

Time will tell, but the market seems to have spoken.  The real way to gauge the value of any system, is to analyze it’s performance, in the way of sales of stock (or in this case, tokens), and how much is being invested in that new business.  The fact that ETH dropped almost 20% the first week post-merge, is a pretty good metric for those looking to earn a quick buck on the value alone. 

The Three Types of Investors

With that being said, Proof of Stake does offer some technical benefits to the users, and app developers, and should perform better in the long run.  The old, now defunct version of Ethereum blockchain had major hurdles in performance and future development, but, nevertheless, it was the 2nd most popular cryptocurrency on the market.  It has the most potential for other uses, as the underlying code is very useful for developing new, more secure and robust Web3 applications, NFT’s, and other decentralized applications, which is a major plus over and above Bitcoin, that for the most part is only a token currency.

So, here’s the breakdown, if you’re a “Type A” investor, just looking to earn some coin by trading or HODLing, you took a hit, but, as they say, you may want to “BUY THE DIP”!

  ETH is at a discount right now, and all indications is it will continue to thrive in it’s fresh new pair of digital shoes, known as “Proof of Stake”.

If you’re a “Type B”, now is the time to make some NFT’s and Applications that run on the new ETH backbone, because they seem to be on the rise, and the fairer and more equitable network make it much easier and less energy-intensive to play in the new cyber-playground.

If you’re a “Type C”, pull the trigger already!  There are a ton of new coins and apps that are being launched, and if you need an incentive to get started, you can get a free copy of my book, “Demystifying Cryptocurrency” with the Digital Signed cover as an NFT at http://tiny.cc/Demyst-NFT, which is paid for with ETH, and is a steal right now with the lower priced coins you can buy!  Owning NFT’s that are limited editions give you the token and the novelty of a collector, with a potential earning as an investment, just saying!

Much Success,

Chuck

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