The news that ETH 2.0 will deploy The Merge phase in August 2022 is one of the events that many investors are interested in recently. There are many opinions that the move to The Merge will negatively affect the price of ETH because there are many ETH staking unlocked, specifically more than 12 million ETH.
What is The Merge?
The ETH 2.0 upgrade process has a very large amount of work, so it is divided into three small stages: Beacon Chain, The Merge, and Shard Chain.
- Beacon Chain is the first stage to transition Ethereum from Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS) mechanism. During this period, the Ethereum network will have 2 parallel chains, ETH1 (using PoW) and Beacon Chain (using PoS). During this phase, to participate in staking, users need to use a min of 32 ETH and cannot withdraw until the next stages are completed.
- The Merge is the phase of merging Beacon and Ethereum 1.0 into one chain using PoS. Ethereum 1.0 will bring the ability to run smart contracts into the PoS system, plus the full history and the current state of Ethereum, to ensure that the transition is smooth for all users and owners’ own ETH.
- Shard Chain is the stage of applying the Sharding solution on Ethereum’s network. Sharding is the process of dividing data into small pieces and processing them at the same time to help the Ethereum network achieve higher performance and improve scalability and capacity.
Unlock ETH after The Merge
First, The Merge phase does not mean that there will be a large amount of ETH being withdrawn and released into the market. The Merge does not unlock ETH withdrawals from the network at all. Unlocking will be done after this period for a period of 6 – 12 months. So the amount of ETH staking and rewards will remain locked for a long time.
This means that even if a withdrawal is made, the ETH will not be unlocked massively but made one after another. According to the mechanism, in order to unstake ETH, validators must first exit the active validator pool. However, in each cycle (epoch), there will be a limit on the number of validators that are exited. This is to ensure that there are always active validators, maintaining the network.
According to statistics, currently, on ETH 2.0, there are 395,000 validators (including active or pending validators), each epoch can allow exiting 4 validators, and each epoch cycle is 6.4 seconds long so it takes more than 420 days to completely get rid of this validator completely. This is a very unlikely thing to happen in practice.
Most investors, funds, or groups will participate in staking ETH in the form of:
- Direct Stake (retail investors)
- Stake through Liquid Staking solutions like Lido Finance
- Stake through Staking Pools or Centralized Exchanges (CEX)
Impact of The Merge on ETH
When successful, The Merge will help the entire Ethereum network operate under the PoS mechanism. It is estimated that this will help reduce the inflation of ETH from 4%/year to only 1%/year. This will be one of the big bull cases for ETH.
In addition, the success of The Merge will make the fomo community more into the future of Ethereum, thereby creating a buy demand, which combined with the need for staking, will create more push for ETH to increase in price.
Besides, one of the main beneficiaries of The Merge’s success will be projects on Ethereum. When transaction costs are cheap, transactions are faster, and users will return to DeFi, GameFi, and NFT on Ethereum, thereby creating new money in the ecosystem, bringing both projects and Ethereum itself to rise chief.
Core Ethereum developer Tim Beiko has outlined a series of suggestions and expectations about the upcoming Merge for application and protocol developers on Ethereum. Beiko urged users and developers to “pay attention and make sure you are ready” for The Merge.
Beiko also claimed that once coins are unlocked, they will be delivered in batches rather than all at once and that those coins are frequently an investor’s “never-sell stack” that will not be sold.
On the Beacon Chain, there are presently 12.6 million ETH staked. The Beacon Chain, which began in December 2020, was one of the initial moves toward turning Ethereum into a PoS network.
Hopefully, the above information helps you have a clearer concept about one of the successful ETH 2.0 and The Merge update processes that will have a more positive impact on Ethereum instead of a negative one. What’s your opinion? Let’s explore more topics with CoinCu News!
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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