Will the Merge save Ethereum? Critics are saying it will only make it worse

Posted: 13 July 2022 3:52 am

Analysts claim the upcoming upgrade to proof-of-stake will result in Ethereum becoming less decentralized.

  • Ethereum is getting perilously close to the psychological resistance of $1,000 as the hype around the Merge draws a new wave of critics.
  • Elsewhere, experts believe Ethereum’s upcoming Merge will result in the digital asset challenging Bitcoin’s market supremacy.
  • A study released by the US Treasury Department states that stablecoins can be beneficial for the economy, especially from a stability standpoint.

After having flirted with the $1,150 threshold for the last 72 hours, Ethereum (ETH) has slipped again. The asset is now trading at $1,050 while exhibiting a weekly loss of -7.2%.

This poor price action comes at a time when Ethereum is getting ready to undergo its highly awaited shift to a proof-of-stake (PoS) consensus mechanism. The news has resulted in a barrage of independent analysts highlighting the fact that voting to change the properties on PoS platforms shows that PoS assets are securities — an aspect that is compounding Ethereum’s ongoing financial woes.

Ethereum co-founder Vitalik Buterin responded, claiming that it was an “unmitigated bare-faced lie.” As per Buterin, a switch to PoS does not result in any sort of voting on protocol parameters, just as it is with proof-of-work (PoW) platforms. He further opined that nodes can reject invalid blocks in both PoS and PoW ecosystems.

Criticisms of PoS were also made by crypto pundit Jimmy Song, who questioned the decentralization aspect of consensus mechanisms. Song added: “Proof of stake does not solve the Byzantine Generals’ Problem. Therefore, it does not provide decentralized consensus.”

In response, Buterin released a tweet addressing the query, while Cardano co-founder Charles Hoskinson chimed in by saying that Song’s take was so stupid that it was “beyond explanation.”

How to buy Ethereum

Can Ethereum challenge Bitcoin’s supremacy?

According to Vivek Raman, an independent decentralized finance researcher, the upcoming Merge can help the Ethereum network gain access to an economic structure that has the potential to challenge Bitcoin’s dominance. He explained that by shifting to PoS, ETH’s native inflation level can be dropped from 4.3% to 0.22%. This drop would allow the ecosystem to reduce its issuance by 95% and limit the number of ETH that can be sold per day.

Raman further explained that after the transition, Ethereum’s native security protocols would be bolstered since it will become more expensive to attack the network. He also sees the Merge allowing ETH to complement Bitcoin’s use cases as a store of value and a collateral asset.

Stablecoins good for commercial bank stability, study notes

According to the United States Treasury Office of Financial Research, central-bank-backed digital currencies (CBDCs) stand to spur the stability of the trad-fi economy, especially the fractional banking system that is in place today. The authors claimed that during times of economic stress, investors can start to “pull funds out of banks and other financial institutions” — a risk that CBDCs can potentially help mitigate.

Disclosure: The author owns a range of cryptocurrencies at the time of writing

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