Ethereum will merge as early as August or September: Good news? Staking crashes the market? What about Layer2?

In a few days, ETH2.0 Merge will be tested on the test network. If successful, it means that the main network merger in August mentioned by Vitalik will be possible!

In the coming period, the merger should be the biggest benefit for ETH. So about this benefit, you should know at least the following things:

Why does ETH have to switch to POS? Is it not possible not to switch?

Why is the merger from POW to POS a huge benefit?

After the Merge is completed, will the huge amount of staked ETH be unlocked and the market crashed?

In the ETH2.0 era, where will Layer2 go?

Let’s look at them one by one below.

01
Why do we have to switch to POS?

The debate on energy consumption, security and other aspects of POW and POS has been going on for several years, but the transition to POS is a foregone conclusion and will not be affected by the will of miners or POW supporters. This was planned in the ETH upgrade route many years ago.

People usually understand the reasons for switching to POS as follows : 1. The cost of maintaining security is lower (less energy is consumed to maintain consensus) 2. In theory, it can prevent 51% attacks better than POW, which means it is safer .

But these two are actually more results than causes.

The real reason is actually on the technical level. If ETH wants to achieve expansion, it must be converted to POS.

The earliest expansion concept was sharding + Layer2. Due to the uncertainty of the longest chain of POW, it is difficult to apply sharding technology. POS must be used to achieve the certainty of random block allocation.

Currently, the main expansion technology is Rollup Layer2, and state sharding technology has been shelved. However, in order to better support Rollup data sharding, Danksharding technology still needs the support of POS, so POS is still the core underlying consensus in the future.

In addition, there are other auxiliary expansion or decentralization requirements such as stateless and light clients, which also require POS, so switching to POS is a must rather than a should.

02
Why is switching to POS a big benefit from a market value perspective?

This angle is even more direct.

Everyone compares BTC to the gold of the crypto world, and ETH to the oil of the crypto world. If the gold mining volume suddenly decreases, it will definitely boost the gold price, especially the digital gold BTC in the blockchain world. The alternation of bull and bear markets brought about by the 4-year halving cycle is still a main theme.

What about oil? Whenever OPEC cuts production, oil prices go through the roof, and everyone’s wallets get emptied when they fill up their tanks.

This time, ETH, the digital oil, will give you a big reduction.

Before the transition to POW, the annual inflation was about 5%, and most of the coins were mined out by miners and sold at a low price.

After switching to POS, according to the current staking rate, inflation will drop directly to around 0.5-1% . Combined with the burning of EIP1559, it is likely that ETH will enter a deflationary state from time to time.

This is a rhythm of reducing production by 5-10 times at once, which is equivalent to the effect of BTC taking 12 years to carry out three halvings, while ETH can do it for you in one go.

Do you think the current price is the price at which the benefits of the merger have been realized? I think not, because although everyone knows that there will be a merger, no one knows the timing. This has been delayed several times. ETH upgrades are also in this style. This time it was delayed to August, but it was postponed again. To be honest, I am not surprised at all...

Image source: Block Beats

04
In the ETH2.0 era, where is Layer2 going?

This is actually a point that puzzles me, but I often see many friends asking about it on Twitter, so I list it here anyway.

First of all , this merger is only the first step in the long journey of ETH2.0, and it will not have much impact on performance improvement. Secondly, it seems that in many people’s impressions, the ETH2.0 era is an era where sharding or other expansion technologies are king, and the current Layer2 based on Rollup is just a transitional technology.

This misunderstanding must be corrected. At present, Layer2 will be ETH's short-term, medium-term, and long-term expansion technology, without a doubt. The earliest proposed sharding technology has actually been abandoned due to its complexity and feasibility.

The sharding of ETH2.0 will be pure data sharding, Danksharding, which is entirely for the cost and data availability space of Rollup. The Layer2 Rollup in the ETH2.0 era will have lower costs and better performance than now, that's all.

Therefore, there is no question of where to go for Layer2. They are not going anywhere and will stay here to serve the ETH ecosystem better, faster and stronger.

In fact, the most interesting point is: where will the current ETH POW miners go?

One theory is that they will transfer their computing power to ETC and mine ETC instead; another theory is that they will sell their graphics cards or mining machines, and then buy ETH for staking and continue mining.

Friends, which one do you think it will be?