The Ethereum (ETH +1.99%) blockchain is closer to migrating to a proof-of-stake consensus mechanism than ever before. Since its creation, the smart contract-enabled blockchain ran on a proof-of-work mechanism. Now a shift to proof of stake is set to take place on Sept. 19. The date was tentatively proposed and accepted by developers indicating that confidence of finishing the project in about two months is reachable.
Now known as The Merge, the upgrade to proof of stake is one of the most highly anticipated events in cryptocurrency history. When considering the value and popularity of Ethereum, a move of this scale is sure to garner considerable attention. The upgrade is more than deserving of all the hype it is receiving. A change to proof of stake will eliminate many of the issues that Ethereum currently faces. With a proof-of-stake mechanism, the blockchain will use less energy compared to power-intensive proof-of-work mining. Instead, validators will stake 32 ETH to earn the chance to verify transactions and earn the block reward rather than having to solve complex math problems that are used on proof-of-work blockchains. Furthermore, proof of stake will increase speeds on the network, which will help minimize troublesome transaction fees when user traffic is high.
CRYPTO: ETH
Key Data Points
Numbers don't lie
For developers, users, and investors of Ethereum, the possibility of a completed upgrade is a refreshing change since the upgrade has been delayed six times since 2017. Although the Sept. 19 date is only tentative, it represents some much-needed progress.
Even though Ethereum suffered from slow speeds and high transaction fees, it became the blockchain of choice for DeFi developers and users due to its programmable smart contracts that are the backbone of DeFi applications. By using a statistic known as Total Value Locked (TVL), we can compare the value of different blockchains that have DeFi applications like lending and borrowing platforms, decentralized exchanges, derivatives trading, and much more. As of today (July 25), Ethereum still holds more than 60% of all the value in the DeFi economy.
Playing the long game
With this type of foundation already intact, the move to proof of stake should help Ethereum continue to dominate DeFi. If Ethereum could rise to the top of DeFi while on the slower and more-costly proof-of-work consensus mechanism, then it would seem plausible that it should be able to capture even more market share once The Merge is complete.
When evaluating future potential under current prices, Ethereum looks like a steal. The widespread crypto sell-off of 2022 hasn't spared any cryptocurrencies. Ethereum is down more than 75% from its all-time high of roughly $4,800. As it trades around $1,500 today, future upside looks more than attractive.
Investors can expect Ethereum to rise back to its all-time high when the macroeconomic environment returns to some normalcy. If the crypto economy can rebound, investors should be confident that the previous all-time high is well within reach when considering the value and role Ethereum has in the crypto economy. If Ethereum were to get back to the $4,800 mark, that would entail a 200% return for investors if they took positions today.
As DeFi continues to expand and develop, we should plan on Ethereum to continue to dominate the field. Despite competitors like Solana, Cardano, Tron, and Binance Smart Chain grabbing considerable portions of the DeFi sector, Ethereum remains at the top. If The Merge stays on track and developers can get to the finish line, investors have good reason to feel better about Ethereum than they have in quite some time.
