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Business News/ Markets / Cryptocurrency/  What happens to Bitcoin after the Ether merge?

What happens to Bitcoin after the Ether merge?

The Merge is the newest upgrade to the Ethereum blockchain, which aims to create a trustworthy decentralized environment for the coming of finance

The Merge is the newest upgrade to the Ethereum blockchain, which aims to create a trustworthy decentralized environment for the coming of finance. (REUTERS)Premium
The Merge is the newest upgrade to the Ethereum blockchain, which aims to create a trustworthy decentralized environment for the coming of finance. (REUTERS)

The second-largest digital currency in the world is expected to complete its transition from energy-intensive Proof of Work (PoW) to Proof of State (PoS) consensus around September 13 to September 15, according to Vitalik Buterin, the inventor of Ethereum.

How will Bitcoin's reputation, which still uses PoW consensus and dominates the cryptocurrency industry, is impacted by The Merge, which is said to transform cryptocurrencies forever?

The $204 billion market cap Ethereum upgrade, which has been expected for years, began last week at 7:34 AM EST with Bellatrix, opening the door for the blockchain to connect with another decentralized ledger called the Beacon Chain and changes to Ether's economics.

Advantages of The Merge

The Merge is the newest upgrade to the Ethereum blockchain, which aims to create a trustworthy decentralized environment for the coming of finance.

In addition to resolving energy difficulties, the switch to proof of stake provides further advantages.

In a PoS system, validators who have staked part of their tokens verify block transactions.

The more tokens someone has linked to the blockchain, the more probable it is that they will be randomly chosen as a network validator.

In contrast, PoW, which mines tokens by utilizing computers to solve mathematical problems, consumes a lot of energy.

PoW has a significant disadvantage due to this rate of energy consumption because it will still be the basis for Bitcoin mining long after Ethereum stops using it.

The recent collapse of cryptocurrency lenders during a bear market is not the only macroeconomic danger that the whole crypto ecosystem is currently facing. There are other risks as well.

Political turmoil, high inflation rates, and hawkish national monetary policies are further problems.

These macro factors are said to have been the catalyst for the current bear market.

Bitcoin's all-time high price was $69,000 in November 2021.

Since then, the global economy has been in trouble, which has caused the price of Bitcoin and other cryptocurrencies to drop dramatically.

Given that the price of Bitcoin varies and is now hovering around $21,000 per coin, the short-term price outlook for the most widely used cryptocurrency is still unknown.

What development or change may aid Bitcoin's rebound is yet unclear.

Additionally, given that the volatility of well-known cryptocurrencies continues to worry mainstream investors, Bitcoin's utility may come under even greater pressure from Ethereum's network upgrade, which aims to establish its ecosystem as the currency of the future.

Pressure on Bitcoin will increase when Ethereum merges

Digiconomist, a science and technology journal that analyses Bitcoin energy use, usually employs economic models incorporating network hashrate, mining income, and yearly energy consumption.

"Bitcoin isn't likely to become more sustainable any time soon," it recently concluded.

After China restricted bitcoin mining, which significantly decreased the number of renewable energy sources needed to power the network, the results received support.

Alex de Vries, a cryptocurrency analyst, and researcher claims that "Bitcoin grew dirtier following the Chinese mining crackdown in 2021."

A PoS consensus for Bitcoin is possible?

Although it may seem lucrative, switching Bitcoin from PoW to PoS is technically difficult.

It would be highly challenging to receive more than 51% of the votes on a network, even if a group of individuals intended to adopt that change.

Compare that to Bitcoin Maxis, who believe that PoS might jeopardize Bitcoin's decentralized nature.

Additionally, those who profit greatly from Bitcoin farming will probably be against any suggestion of this nature.

Similar sentiments are seen on the Ethereum network.

Ethereum will also split into two chains, one of which will use PoW to validate transactions.

Therefore, drawing the conclusion that all PoW chains may be converted to PoS would be naïve.

However, since the currency would be more environmentally friendly, there may also be a greater acceptance of it.

After integration, just 23% of the entire volume will be proof of work, mostly in the form of Bitcoin.

After ETH Merge, regulators will eye Bitcoin

Regulators are now looking for ways to control bitcoin, with PoW appearing to be the first target. PosOne of Bitcoin's ongoing flaws is its image as a power guzzler.

Ethereum is creating the foundation for PoS, in a contrast to PoW, which cannot be used for the metaverse or NFTs.

However, new protocols and governance models will probably be developed in response to competing cryptocurrencies.

Competition, regulations, and energy concerns are just a few of the variables at play with Bitcoin's uncertain future.

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Published: 13 Sep 2022, 12:54 PM IST
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