(Kitco News, Mon. Mar. 28th, 2022) – The Ethereum 2.0 upgrade, otherwise known as “The Merge,”is expected to launch by the end of June and is “the biggest news in crypto today,”said Ran Neuner, founder and host of The Crypto Banter, co-founder of Crypto Trader, and CEO of OnChain Capital.
Developers have successfully tested the merge of Ethereum’s proof-of-work and proof-of-stake chains, which will allow ether staking to generate yields of up to 10% to 15%, according to experts.
Importantly, The Merge will reduce Ethereum’s carbon footprint significantly, Neuner told Michelle Makori, editor-in-chief of Kitco News.
“Proof of work is a very high electricity consumption, very high equipment consumption way of mining cryptocurrencies or proving transactions. And it is one of the big criticisms that Bitcoin faced,”he said.
Bitcoin, which runs on the proof-of-work network, has been the subject of criticism for its environmental footprint.
Neuner noted that when Tesla CEO Elon Musk made the announcement that Tesla is accepting payment in Bitcoin, he received pushback from his Board of Directors about using a non-ESG (environmental social governance) friendly asset when the company is trying to preserve an image of being one of the greenest companies in the world.
Recently, the European Union contemplated banning Bitcoin due to its lack of ESG qualities, although members of the European Parliament voted not to ban it.
“So, what they’re doing is they’re moving Ethereum from proof-of-work to a much more energy efficient proof-of-stake. It’s much more energy efficient and it’s much faster. The only issue is that somehow you have to combine the chains: the old proof-of-work chain and the new proof-of-stake chain,”he said.
There’s also the issue of scaling that proof-of-stake aims to fix.
“Proof of work is also not very scalable, and one of the big criticisms that both Bitcoin and Ethereum have been facing, and specifically Ethereum…which uses proof-of-work mining, cannot keep up with the transactions that are required,”Neuner said, noting that Ethereum is needed for not just investments but is being adopted by a wide range of decentralized finance (DeFi) applications.
Ethereum will also see its supply shrink over time, Neuner said.
“The second thing that happens, which is very, very interesting right now, Ethereum has an uncapped supply. Bitcoin has a capped supply of 21 million but Ethereum has an uncapped supply, which means that theoretically, you could keep printing ETH forever and Ethereum is not scarce. But Ethereum also has another mechanism which is called a burning mechanism. When every transaction is completed we burn a certain number of Ethereum. When we destroy the net burn, they’re gone forever,”he said. “And so the Ethereum emissions, the amount of Ethereum that are being created every day, are going to be reduced by 90%.”
Last, The Merge will reward Ethereum holders with a higher yield when the token is staked.
“The returns today on staking Ethereum are 3.9%,”he said. “When the merge happens, the returns on Ethereum are going to be between 10% to 15% per year.”
In theory, if the burn rate exceeds the rate at which new ETHs are being created, the supply of Ethereum would shrink indefinitely until it approaches zero, although Neuner noted that could take “thousands of years.”
“Ethereum becomes deflationary, so now, you’ve got an energy efficient, deflationary asset. Get into the mind of a fund manager. You can invest in Bitcoin, which is moderately inflationary, and heats up the atmosphere and is non-ESG friendly and deflationary,”he said. “It’s actually becoming more and more scare. Where in the world do you have the opportunity to invest in a scare asset, and by the way earn 10% to 15% return? I’ve never heard of it.”
Neuner himself is more heavily invested in Ethereum as compared to Bitcoin, as he sees more growth in the former.
However, the “Ethereum Flippening,”the theory that Ethereum’s market cap will overtake Bitcoin’s, is still not happening anytime soon.
“I think maybe in a couple of years, that is a discussion for it to be happening, but let’s look at what’s happening right now,”he said. “For a long time, ETH was devaluing against Bitcoin until about January 2020, and since January 2020, actually that trend has been completely reversed and we’re seeing ETH strengthen towards Bitcoin. Flippening…that’s a little bit ambitious. For now, if you ask me, if you’ve got a gun to your head and can only invest in one, Bitcoin or ETH? My money’s on ETH.”
Posted by :
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com