Ethereum price

Is post-Merge Ethereum PoS a threat to Bitcoin’s dominance?

Cory Klippsten, the CEO of Swan Bitcoin, shares his views on how “the competition for liquidity” between Bitcoin and Ethereum will play out after the latter’s switch to a proof-of-stake system.

While Ethereum fans are enthusiastic about the successful Merge, Swan Bitcoin CEO Cory Klippsten believes the upgrade will lead Ethereum into a “slow slide to irrelevance and eventual death.”

According to Klippsten, the Ethereum community picked the wrong moment for detaching the protocol from its reliance on energy. As many parts of the world are experiencing severe energy shortages, he believed the environmental narrative is taking the back seat.

In an exclusive interview with Cointelegraph, Klippsten said “I think the world is just waking up to reality and Ethereum just went way off into Fantasyland at the exact wrong time.”

“It is just really bad timing to roll out that narrative. It just looks stupid.”

According to some predictions, institutional capital will increasingly turn away from Bitcoin (BTC) and flow into Ethereum if Bitcoin doesn’t move away from the energy-consuming proof-of-work system.

Klippsten dismisses this narrative as false, citing that, ultimately, all valuable technologies need to rely on real-world energy to function correctly.

“If you don’t have some tethering to the real world using laws of physics, you’re basically off creating some kind of like metaverse fantasyland.”.

Watch the full interview on our YouTube channel and don’t forget to subscribe!

Ethereum post-Merge hard forks are here: Now what?

The Merge marks a turning point for the Ethereum network, but what are the consequences of switching to a new consensus mechanism?

On the first day after the Merge, the decentralized finance (DeFi) community is settling into the seemingly uneventful transition of the Ethereum network from proof-of-work (PoW) to proof-of-stake (PoS). However, it has yet to be seen the benefits that hard forks will bring to PoW supporters.

So far, the most important contending networks in favor of the mining community, EthereumPoW and Ethereum Classic, have shown different outcomes post-Merge.

A stumbling start

The fledgling EthereumPoW started its debut with Twitter users reporting issues with accessing the network. The issues were confirmed to be the result of a hack to the network but was reportedly resolved.

Major cryptocurrency exchange OKX has already started providing on-chain data for the new network. Though the current transaction activity of the crypto asset seems stable, the PoW spin-off’s price value has been in constant decay since its launch, going from a price of $137 at its peak to $5.87 at publishing time, according to CoinMarketCap.

Moving forward, there is no clear infrastructure or roadmap plan for the ETHPoW network. The project’s “meme” white paper, displayed on its website, is 10 pages long, with five of them solely dedicated to the title of the project and the remaining five “intentionally left blank.” The prank document is also accompanied by a GitHub repository with merely 16 contributions since August this year, and no further information is provided on the section of EthereumPoW official documents.

ETC’s revival

The cryptocurrency Ethereum Classic (ETC) could see a turnaround in its struggle to lift off, as the community could shift to the six-year-old project.

Originally created in 2016, the existence of Ethereum Classic is the result of one of the biggest philosophical divisions in the Ethereum community. The fork originated as a solution to the hack of The DAO, a project executing on the Ethereum network.

The DAO was an early iteration of a decentralized autonomous organization (DAO) on the Ethereum network. To address the hack and compensate investors, the community agreed to essentially roll back the network’s history to before the hack happened with a hard fork. While the new fork inherited the name “Ethereum,” those who disagreed with the move continued to support the old fork, which became known as Ethereum Classic.

Today, Ethereum Classic works as an open-source blockchain that runs smart contracts with its own cryptocurrency.

The preference for ETC over other fork options goes beyond its market price, already submitted to various ups and downs, but rather a matter of practicality. Sebastian Nill, ETC miner and chief operations officer of mining consulting company AETERNAM, told Cointelegraph that, since it runs using a PoW consensus protocol, it is more attractive for the mining community, adding:

“The possibility of a hardfork has always been there. People are always going to prefer to be able to mine Ether rather than having to buy it.”

As the network is a fork of Ethereum, meaning everything the main network had can be replicated on its hard fork, that doesn’t imply that the possibility of building products and services on top of the ETC’s chain would be the main interest for the community.

The cryptoasset could also absorb most of the energy consumption left by Ethereum to apply on their own proof-of-work, allowing the network to confirm transactions and maintain its security with an important amount of energy resources.

“Ethereum Classic is going to be just as effective as Ethereum was for miners. In the end, the community is going to pick ETC, not because of its rentability but for effectiveness for data processing,” Nill says.

The user perspective

The users that decide to hold Ethereum PoW or any subsequent token post-Merge could find it difficult to trade their new assets. The support for operations with the fork-resulting asset from major exchanges like Binance is a current relief for holders who still face the asset’s decay in value.

Moreover, another concern that could be in sight is the one coming from the regulation front. In a recent commentary given to Wall Street Journal reporters on Thursday, the United States Securities and Exchange Commission chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that allowed staking could be defined as a security.

The regulatory attention toward Ethereum resulting from a PoW to PoS transition could be a game changer that effectively fits the U.S. law. This is due to the possibility of staked assets to generate dividends and be seen as securities according to the Howey test.

On the other hand, while Ethereum’s upcoming PoS model is more energy efficient and environmentally friendly, the upgrade hasn’t cured the current headaches for DeFi protocols and its users, like network congestion and high transaction fees, known as gas fees. For instance, the first nonfungible token (NFT) to be minted post-Merge cost over $60,000 in gas fees.

The building of strong foundations over providing lower gas fees and major transaction speed is a temporary tradeoff that won’t affect the market, as Matt Weller, global head of research of City Index, told Cointelegraph:

“From a user perspective, you want something that is cheap, fast and reliable. Through the Merge and more scaling in future plans for the Ethereum Foundation, this could be a foreseeable opportunity. They have worked from a very safe place, assuring security at all cost over other tradeoffs.”

No shortcuts

Ethereum’s choice to bet on a change for its consensus protocol has been defended as a necessary, non-negotiable step.

Skylar Weaver, devcon and devconnect lead of the Ethereum Foundation, told Cointelegraph that the Merge is a testament to the network’s “no shortcuts” approach to its development:

“No, I don’t think it is a trade-off. I see PoS as a necessary step to achieve those user-focused perks, like transaction speed and lower gas fees. Other chains achieve lower gas fees and faster transaction speeds indeed by making tradeoffs: They sacrifice decentralization to have more scalability. They take shortcuts.”

Moreover, the usage of rollups through layer-2 networks will still allow access to Ethereum’s benefits for mainstream users.

“Ethereum is scaling right now via L2s. Specifically rollups. Folks can use Rollups today to have transactions with a fraction of the gas cost, faster, while still inheriting the security and decentralization benefits of Ethereum. That’s how we are scaling without taking shortcuts.” Weaver said.

‘Fed sledgehammer’ will further batter BTC, ETH prices — Bloomberg analyst

With the Merge resulting in a “buy the rumor, sell the news event,” Mike McGlone thinks that ETH might drop to “$1,000, or even get a bit lower” given how hawkish the Fed has been.

The United States Federal Reserve’s inflation “sledgehammer” is about to batter the prices of Bitcoin (BTC) and Ether (ETH) down even further, before reaching back to new all-time highs in 2025, according to Bloomberg analyst Mike McGlone.

Ahead of the latest Fed interest rate hike to be announced this week, the market is expecting a minimum of a 75-basis-point increase, however some fear it could be as high as 100 basis points, which would represent the biggest rate hike in 40 years.

Speaking with financial news outlet Kitco News on Saturday, McGlone, senior commodity strategist of Bloomberg Intelligence, suggested that further market carnage is on the cards for BTC, ETH and the broader crypto sector as Fed’s actions will continue to dampen investor sentiment:

“We have to turn over to the macro big picture and what’s been pressuring cryptos this year and that is the Fed sledgehammer.”

The price of BTC has dropped 13.4% over the past seven days to sit at roughly $19,350 at the time of writing, while ETH has plunged a hefty 20.7% within that timeframe to around $1,350.

ETH’s 20% drop in particular has been a cause of discussion, as the price of the asset has tanked since the highly anticipated and long awaited Merge went through on Sept. 15.

With the major network upgrade essentially resulting in a “buy the rumor, sell the news event,” moving forward McGlone thinks that ETH might drop to “$1,000, or even get a bit lower,” given how hawkish the Fed has been and will continue to be this year.

“I’m afraid [The Merge] got too hyped,” said McGlone, adding that ETH’s price decline is “within a significant macroeconomic broad-based bear market for all risk assets.”

During the interview, McGlone even went as far as to predict that the latest rate hike could cause a crash across assets that is worse than the 2008 housing bubble meltdown:

“I think it’s going to be worse than the 2008 correction, worse than the Great Financial Crisis.”

“The Fed started easing in 2007, and then they added massive liquidity. They cannot do that anymore,” he added.

There is of course a pinch of hopium, however, as McGlone also tipped BTC to strongly rebound and hit a new all time high of $100,000 by 2025, while he is very bullish on ETH long-term due to future potential for institutional adoption.

Looking elsewhere, other analysts and experts have shared a similar amount of short-term pessimism to McGlone. Speaking to the New York Times on Monday, Kristina Hooper, the chief global market strategist at Invesco, noted the latest Fed announcement will be pivotal because of “what it could mean for the direction of the stock market for the rest of the year.”

“The Fed has been the key driver of the stock market this year, and it has been mostly bad,” she said.

While Ark Invest CEO Cathie Wood also added to her warning from last week that the Fed’s continued hikes could instead end up causing deflation, stating in a Sunday tweet that the “Fed is solving supply chain issues by crushing demand and, in my view, unleashing deflation, setting it up for a major pivot.”

This inflation started fewer than two years ago with COVID and supply chain bottlenecks, exacerbated by Russia’s invasion of Ukraine this year. The Fed is solving supply chain issues by crushing demand and, in my view, unleashing deflation, setting it up for a major pivot.

— Cathie Wood (@CathieDWood) September 17, 2022

White House’s first crypto framework and missed opportunities — Law Decoded, Sept. 12–19

The industry didn’t take the document well, as the policymakers’ focus on security and enforcement is all too visible.

By the end of last week, the federal agencies presented the results of their six-month-long work on the principal directions for digital assets regulation in the United States. The resulting first-ever crypto framework, published on the White House website, may not contain many surprises or exact details, but, as a part of President Joe Biden’s executive order, it will undoubtedly affect the policymaking decisions to come.

Perhaps the most important section of the framework is dedicated to central bank digital currencies (CBDCs). It revealed that the administration has already developed policy objectives for a U.S. CBDC system, but further research on the possible technological foundation of that system is needed. Still, the intent seems pretty serious as the Treasury will lead an interagency working group with the participation of the Federal Reserve, the National Economic Council, the National Security Council and the Office of Science and Technology Policy.

The industry didn’t take the document well, as the policymakers’ focus on security and enforcement is all too visible. Kristin Smith, executive director of the U.S.-based Blockchain Association, called it “a missed opportunity to cement U.S. crypto leadership,” highlighting its heavy emphasis on risks, not opportunities, and the lack of substantive recommendations on the promotion of the crypto industry. Speaking to Cointelegraph, Sheila Warren of the Crypto Council for Innovation said the policy recommendations seemed to be based on an “outdated and unbalanced understanding” of crypto, which could leave the details to be determined by other lawmakers or the next administration.

The Merge and its regulatory repercussions

Ethereum’s upgrade to proof-of-stake (PoS) may have placed the cryptocurrency back in the crosshairs of the Securities and Exchange Commission. SEC chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that allow holders to “stake” their crypto may define it as a security under the Howey test. Gensler went on to say that intermediaries offering staking services to their customers “looks very similar — with some changes of labeling — to lending.” The SEC has previously said they didn’t see Ether (ETH) as a security, with both the Commodity Futures Trading Commission (CFTC) and the SEC agreeing that it acted more like a commodity.

18 potential design forms for the American CBDC

The Office of Science and Technology Policy submitted a report analyzing the design choices for 18 central bank digital currency systems for possible implementation in the U.S. The technical analysis of the 18 CBDC design choices was made across six broad categories: participants, governance, security, transactions, data and adjustments. Helping policymakers decide on the ideal US CBDC system, the OSTP report highlighted the implications of including third parties in the two design choices under the “participants” category — transport layer and interoperability. For governance, the report weighed various factors related to permissions, access tiering, identity privacy and remediation.

Thailand prepares to ban crypto lending

The Securities and Exchange Commission (SEC) of Thailand is preparing to take radical measures in the aftermath of crypto lending platforms’ crashes experienced in Summer 2022. The Thai SEC plans to prohibit crypto platforms from providing or supporting digital asset depository services. The planned ban includes several principal points. It will prohibit operators from taking a deposit of digital assets with a promise to pay returns to depositors — even if the returns come not from the growing value of the assets but from the promotion budget. The advertising of lending and depositary services would also be banned.

White House’s first crypto framework and missed opportunities — Law Decoded, Sept. 12-19

The industry didn’t take the document well, as the policymakers’ focus on security and enforcement is all too visible.

The Merge and its regulatory repercussions

18 potential design forms for the American CBDC

Thailand prepares to ban crypto lending

Bitcoin is trapped in a downtrend, but a ‘trifecta of positives’ scream ‘deep value’

In a recent Twitter Space, Capriole Fund founder Charles Edwards told Cointelegraph that BTC could go lower, but currently reflects “incredible deep value” based on multiple price metrics.

$20,000 is no longer support.

$100,000 didn’t happen.

The Bitcoin halving is 562 days away.

Bears simply refuse to release their vice grip on the market and the Federal Reserve’s policy of interest rate hikes and quantitative tightening is adding fuel to the fire.

Despite these challenges, in a Sept. 15 Twitter Space hosted by Cointelegraph, Capriole Fund founder Charles Edwards explained why he is still bullish on Bitcoin.

Edwards said that several on-chain metrics suggest that BTC is undervalued:

“I see incredible deep value and I kind of call it a trifecta and that we have three positive things happening in my mind. One is cycle timing, where between years two and three, which historically has been where all of the Bitcoin cycles are bottomed. The second is that we’ve hit 90% of normal cycle down draws. Now, obviously, all of these things can go lower, but that alone is a bit of a good value signal. And then thirdly, just the readings across pretty much all on-chain metrics, whether it be Mayer Multiple, whether it be Puell Multiple, or NVT or dormancy, everything is at kind of one in four year level discounts. So for me, it’s kind of that once a cycle opportunity that we see at the moment.”

When asked about his thoughts on the previous Bitcoin halving and how the current economic environment might impact the next halving, Edwards said:

“I think it was successful because it placed Bitcoin as one of the hardest assets in the world in the midst of massive monetary printing. And we did see a lot of the old school traditional finance, legendary investors, Druckenmiller, etc. kind of get into Bitcoin because of that as it’s kind of a hedge more or less. And that kind of triggered the next 6 to 12 months of rallying. I also think that the crypto industry still does run on the Bitcoin halving cycle kind of time frame. For now. I don’t think they will continue forever, but for now I do still think it holds weight and impact in how people invest in the space. With each subsequent halving the incremental value of the drop in inflation for bitcoin is negligible because it’s already — barring Ethereum — now the hardest asset, or harder than gold.”

2022 has proved that risk management and building a balanced portfolio is still a skillset crypto investors are working to develop. Edwards said:

“Whatever your method is, however you are trading or investing, whether using stop losses or not as a strategy. You need to do some detailed modeling over as much data as you can and not just two years of data, because that’s how entities have blown up in the past. Do as much as you can, like 10 years of Bitcoin at least, and assume the worst and then add again an element of buffer below that to manage your position sizing.”

Tune in and listen to the full episode!

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The floppening? Ethereum price weakens post-Merge, risking 55% drop against Bitcoin

A classic bearish reversal pattern suggests pain ahead for the ETH/BTC pair despite Ethereum’s milestone Merge event.

Ethereum’s native token Ether (ETH) has been forming an inverse-cup-and-handle pattern since May 2021 on the weekly chart, which hints at a potential decline against Bitcoin (BTC).

*ETH/BTC weekly price chart featuring inverse cup-and-handle breakdown setup. Source: TradingView*

An inverse cup-and-handle is a bearish reversal pattern, accompanied by lower trading volume. It typically resolves after the price breaks below its support level, followed by a fall toward the level at a length equal to the maximum height between the cup’s peak and the support line.

Applying the theoretical definition on ETH/BTC’s weekly chart presents 0.03 BTC as its next downside target, down around 55% from Sept. 16’s price.

Can ETH/BTC pull a Dow Jones?

Alternatively, the ETH/BTC pair could nevertheless deliver some large gains in the years to come.

On the weekly log chart, the ETH/BTC pair is painting a potential cup-and-handle since January 2018. In other words, a rally toward 0.5 BTC in 2023 is on the table, up more than 520% from current price levels.

Unlike its inverse counterpart mentioned above, cup-and-handles are bullish reversal patterns with their upside targets located at levels equal to their maximum height when measured from their breakout point.

Veteran analyst Tom Bulkowski notes that these patterns have a 61% success rate of meeting their upside targets.

For instance, the cup-and-handle pattern that formed on the Dow Jones chart during the Great Depression of the 1930s and 1940s — wherein the cup took nine years to develop and the handle another four years — reached its upside target in the 1950s, as shown below.

*Dow Jones Industrial Average cup-and-handle pattern. Source: StockCharts.com*

Potentially, ETH/BTC could now be in the handle stage of a similar cup-and-handle pattern, as shown via the shaded purple descending channel area in the chart below.

*ETH/BTC weekly price chart featuring cup-and-handle breakout setup. Source: TradingView*

The pair awaits a breakout move above the pattern’s resistance level of 0.08 BTC. For now, it has been fluctuating lower inside the handle range, eyeing a pullback toward its lower trendline at around 0.05 BTC after testing the upper one as resistance this week.

Flippening or floppening?

Ethereum’s potential to overtake Bitcoin by market capitalization has been commonly dubbed as “the flippening.”

Ethereum is competing with Bitcoin to become the so-called “inflation hedge,” according to Joshua Lim, head of derivatives at Genesis Trading. Lim cited Ethereum’s EIP-1559 update from August 2021 that introduced a fee-burning mechanism into its protocol.

According to Ultrasound.Money, Ether’s supply growth now stands at minus 1.43% per year. In other words, the token could be becoming “disinflationary” with time. Lim argues that it makes Ether an attractive alternative to Bitcoin among institutional investors.

12/ can BTC remain king going fwd? only time will tell if the ETH narrative post-Merge is strong enough to overthrow the status quo

in the meantime, expect BTC to continue to trade like a funding asset and preferred hedging instrument for the entire asset class

— Joshua Lim (@joshua_j_lim) August 29, 2022

But many argue against the flippening narrative, including Rahul Singh, the co-founder of Defi platform FINtokens. He told Cointelegraph Bitcoin would continue existing as a “digital gold” while Ethereum would become an “Internet 2.0” project.

Never Ever…
B’coz#Bitcoin in Digital Gold
&#Ethereum is Internet 2.0

So,
There’s a lot of difference between Digital Asset Values, &
Digital Soft. Values

— AskToRahulSingh©️ (@AskToRahulSingh) July 13, 2022

As of September 2022, Ether’s market cap is $175 billion compared to Bitcoin’s $372 billion.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

The Ethereum Merge to proof-of-stake is complete — What’s next? | Interview with Dr. Julian Hosp

Now that the historic Ethereum Merge is finally complete and everything went off smoothly, what’s next for the network? Join us as we discuss this and more with Tim Warren, co-host of Coffee N Crypto, and Dr. Julian Hosp.

In this week’s episode of Market Talks, we welcome Julian Hosp, CEO and co-founder of Cake DeFi.

Julian Hosp is the CEO and co-founder of Cake DeFi, a highly intuitive online platform dedicated to providing access to decentralized financial services. He is widely regarded as a leading influencer in the crypto and blockchain space with over one million followers across all of his channels globally. He is also a best-selling author and his vision is to bring blockchain awareness and understanding to a billion more people by 2025.

The Merge has been all over the place recently, with different news outlets, influencers and YouTube channels covering the event as much as possible, but why does the Ethereum Merge actually matter, and why is it such a significant event in crypto? We ask Julian to break it down for us.

Now that the Merge is finally complete and Ethereum has successfully moved from proof-of-work to proof-of-stack, what has actually changed? Will the network be any different for users or will it behave differently for day-to-day transactions? Also, what’s next for Ethereum? Are there more upgrades or changes planned for the future? Will the Merge bring more institutional adoption now that the network is more environmentally friendly?

After all the news and attention the Merge got, a lot of people were expecting there to be a huge pump or dump in the price of Ether (ETH) and other cryptocurrencies. But the markets were largely unaffected by the event. This begs the question, was it all just hype? We get Julian’s take on the matter.

Moving on from Ethereum to the new Consumer Price Index (CPI) data, we get Julian’s take on what the data means and why it caused Bitcoin (BTC) and other cryptocurrencies to dump as soon as it was released. Bitcoin has been hovering close to the $20K level, we ask Julian if he thinks it can go below again and how low can it go this time considering all the macroeconomic factors around the world. We also discuss what important price levels he is keeping an eye on for Bitcoin and why they matter.

Tune in to have your voice heard. We’ll be taking your questions and comments throughout the show, so be sure to have them ready to go.

Market Talks with Coffee ‘N’ Crypto’s Tim Warren streams live every Thursday at 12 pm EsT (4:00 pm UTC). Each week, we feature interviews with some of the most influential and inspiring people from the crypto and blockchain industry. So, be sure to head on over to Cointelegraph’s YouTube page and smash those like and subscribe buttons for all our future videos and updates.

Bitcoin hits 3-week high as trader says ‘all signs there’ to short BTC

Little faith remains in continued upside for BTC price action after a week of solid gains brings back the 100-day moving average.

Bitcoin (BTC) kept grinding higher at the Sept. 12 Wall Street open as traders called for an imminent correction.

*BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView*

$23,000 proves essential to flip

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD hitting $22,481 on Bitstamp, its highest since Aug. 19.

The pair had preserved existing gains over the weekend, with a declining U.S. dollar providing a catalyst for risk assets as the week began.

The S&P 500 and Nasdaq Composite Index both traded up 1.1% after the first two hours’ trading. By contrast, the U.S. dollar index (DXY) was down 0.7% on the day.

*U.S. dollar index (DXY) 1-day candle chart. Source: TradingView*

Analyzing the situation, popular trader Crypto Ed said that the time had now come to eye a corrective move on BTC/USD.

“I would say that all signs are there for some shorts,” he told viewers in his latest YouTube update.

Upside potential was likely limited to $23,000, he suggested, while to the downside, $20,800 was an area of interest.

A CME Bitcoin futures gap left over from the Sept. 10 close, meanwhile, added the area around $21,400 as a possible retracement target.

“I only would be looking for longs if we break $23,000, then for a move towards $28,000–$29,000,” Crypto Ed added.

*CME Bitcoin futures 1-hour candle chart with gap highlighted. Source: TradingView*

Equally expecting a trend change was Il Capo of Crypto, who on the day reinforced a conviction that the current price strength was simply a relief rally within an overall bear market.

“Most people getting bullish now. Remember that this is a short squeeze, a bounce that happens during a bear market to continue the downtrend afterwards,” he tweeted.

“I still expect a little bit higher ($22500–$23000), but soon I will turn full bearish again.”

Having sealed a weekly close above its realized price, BTC/USD now looked primed to see a daily candle close above the 100-day moving average (MA) for the first time since April.

*BTC/USD 1-day candle chart (Bitstamp) with 100-day MA. Source: TradingView*

Ethereum struggles on Merge countdown

Less inspiring, meanwhile, was price action on Ethere (ETH), which lost ground on the day despite ongoing hype around the Merge.

*ETH/BTC 1-day candle chart (Binance). Source: TradingView*

ETH/USD was down 2.2% at the time of writing, while ETH/BTC caught the attention of some market participants.

Update: Rejection off the 0.085 level for ETH/BTC.

My position that the run-up in ETH going into the merge has no more gas is intact. Will continue watching this. https://t.co/HKPdHmsDrb pic.twitter.com/Xy0J6baaai

— Joe Consorti ⚡ (@JoeConsorti) September 11, 2022

Bitcoin’s share of the overall cryptocurrency market cap thus saw a stiff rebound on the day after hitting just 38.9%, its lowest since January.

*Bitcoin market cap dominance 1-week candle chart. Source: TradingView*

What the Ethereum Merge means for the blockchain’s layer-2 solutions

Experts share their views on how the Merge would impact Ethereum’s scalability solutions in the form of layer-2 chains.

Ethereum is just over a week away from officially moving to a proof-of-stake (PoS) blockchain with the Merge slated for completion around Sept. 13–15. With the transition, Ethereum would abandon its current proof-of-work (PoW) chain, eliminating miners from the ecosystem.

Ethereum is a vast ecosystem with thousands of decentralized applications and decentralized finance protocols working on top of it. Additionally, there are several layer-2 solutions, i.e., solutions built on top of the blockchain itself, the layer 1, to facilitate faster transactions and make Ethereum more scalable.

The Merge would mark the completion of the second phase of the three-phase transition process. The upcoming event will only see the official change of consensus, where the Ethereum blockchain would start processing transactions on the PoS chain. However, there won’t be much impact on scalability or gas fees.

The scalability fixes are meant to arrive after the completion of the third phase, which would introduce sharding, a form of parallel processing that Ethereum founders and developers have claimed would increase Ethereum’s transaction throughput exponentially.

Will layer-2 solutions like Polygon, Arbitrum One, Boba Network and Loopering be viable after the Merge? Cointelegraph got in touch with industry insiders for insight into how these L2 ecosystems will be impacted by the Merge.

Bitfinex chief technology officer Paolo Ardoino believes the Merge won’t have any impact on L2s as the Merge won’t solve the scalability solutions immediately. He told Cointelegraph that even after the completion of the third phase of the Ethereum transition, when it becomes monumentally scalable, L2s will still find a place in the ecosystem. He explained:

“It will be business as usual for L2s. These solutions still have key value for short, medium and long-term scalability. L2s will still be needed to fulfill the growing demand and usage of blockchains across the globe. Even 100,000 transactions per second would not be sufficient to meet true global demand and adoption.”

Anton Gulin, global business director at AAX Exchange, told Cointelegraph that L2s wouldn’t face many issues or see a need for great technical changes as the translation is two years in the making, so L2 chains are already prepared.

“The more significant point is how successful the Merge would be and whether it can meet the momentum. With the more significant investments flowing into space, we can expect even more performing solutions, regardless of what will happen after the Merge. The rest of the L2s would either adapt or seize to exist,” he explained.

Recent: How high transaction fees are being tackled in the blockchain ecosystem

It’s a general misconception that the Ethereum scaling solutions would eventually make L2 solutions redundant or of no use, but a majority of L2 solutions such as Polygon have said that the change of consensus for Ethereum won’t really cut down the need for such L2 scaling solutions. In an official blog post, the protocol said:

“While the merge does pave the way for sharding, this future upgrade will not be enough to scale Ethereum. In fact, Polygon will benefit from it, and it will boost the performance of our scaling solution.”

Looking at the short-term and long-term role of L2s post Merge

Many people are wondering how L2 ecosystems fit into the picture, given that Ethereum is leveraging the Merge to build its infrastructure. L2 integrations have boosted Ethereum’s performance for a while now. But experts have claimed that the Merge will not just improve the Ethereum ecosystem, but that L2s are set to become more efficient as well.

Vlad Totia, a research analyst at L1 blockchain platform Zilliqa, told Cointelegraph that L2 will improve in tandem with L1. He explained:

“Every L2 that is built to help Ethereum scale moves together with Ethereum. Meaning that if, for example, we take that Arbitrum is faster than Ethereum before the Merge and the L1 itself becomes faster, then Arbitrum essentially scales in speed as well. User and developer experience with L2s will improve in tandem with how Ethereum improves over time.”

The Merge is also expected to make L2s more environmentally friendly with the likes of Polygon claiming it would eventually cut their carbon emission by 60,000 metric tons, or 99.91% of their current value.

The Merge will be erasing 60,000 Tonnes of #Polygon’s Carbon Footprint.

Ethereum’s transition to the PoS consensus will reverberate throughout the broader ecosystem in many ways, but it will have a singular impact on the carbon emissions profile of Polygon’s network.

[1/11] pic.twitter.com/RNkxvRQ1EL

— Polygon – MATIC (@0xPolygon) September 7, 2022

Experts believe the environmental aspect of the PoS transition could pave the way for better adoption via L2s. Pat White, CEO, and co-founder of enterprise digital asset platform Bitwave, told Cointelegraph that the shift to proof-of-stake would be key to legitimizing the Ethereum network and bringing more enterprises to the blockchain. He said that a “substantial number of businesses have been sitting on the sidelines of digital assets because of environmental concerns. The Merge might be the catalyst to bring enterprise into the fold.”

Apart from efficiency and environmental benefits, the transition is expected to enhance the network’s security against coordinated attacks. White explained that PoW blockchains are vulnerable to reorg attacks, “while similar attacks are much more difficult to occur on a PoS blockchain since the attacker would have to burn two-thirds of the supply of ETH.”

This de-risking of ETH will open floodgates of institutional capital as the network is more secure and friendly to corporate environmental, social and governance goals, White added.

The Merge would mark the completion of the second phase of the three-phase process. A significant chunk of scalability features such as sharding and high transaction throughput will be achieved after the completion of the third and final phase, slated for the end of 2023.

Daniel Nagy, chief scientist at decentralized storage and communication system provider Swarm Foundation, shed light on a different aspect of the Merge and its long-term impact on L2s. He told Cointelegraph that with the introduction of long-term scalability solutions, many projects, especially nonfungible token (NFT) projects, might opt for L1 rather than L2s.

He said that in more advanced L2 transaction systems, the rollups will be significantly helped by the Merge and might also eat into the current market share of side-chains. Nagy added that rollups, both the optimistic and the zero-knowledge kind, will vastly benefit from sharding, even in its most primitive form, where it is only useful for storing guaranteed-availability data.

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This will also not materialize immediately with the Merge but can be expected soon thereafter. He explained, “rollups will probably gain adoption, while side chains can be expected to lose popularity both to rollups and to the more scalable L1 enabled by the Merge.”

Many industry insiders have indicated that L2s will continue to thrive and gain traction on the Ethereum blockchain irrespective of how scalable the network becomes, predicting that even though the Ethereum mainnet might see some traction after the completion of all phases, L2s will continue to be the execution layer.