It’s a make-or-break year for Ethereum. Can the second-ranked network deliver on its promises?
- “The Merge” to Proof-of-Stake is expected to be completed by the end of the year.
- ETH is likely to become a deflationary asset, as the Merge will see it become 99.95 percent more energy efficient.
- If it wants to avoid losing ground to its competitors, it needs to move to Proof-of-Stake and Layer 2 traction this year.
With the Proof-of-Stake on the horizon, this is a crucial year for the project.
Ethereum Prepares for the Merge
As the big bull run was getting going, many people talked about how 2021, would be “Ethereum’s year.” The narrative took hold thanks to the mainstream NFT explosion and popular EIP-1559 update. Solana, Avalanche, and Terra were the ones to have stolen the thunder.
Things look different now. The dust has yet to settle on the 2021 market mania and newer smart contract networks are either posting lows or caught in multi-million dollar bets over their possible implosion. There are over 10 million ETH staked on the Beacon Chain, but that is not what people are paying attention to. Not entirely.
The big news of the last few days was that the Kiln testnet has been completed. Last week, Kiln quietly transitioned from Proof-of-Work to Proof-of-Stake, the last testnet before the public testnet upgrade.
For the first time, it feels like the network will move to Proof-of-Stake in June of 2022, but it has faced criticism for its long delays in the past.
You might be wondering why Proof-of-Stake is significant. The likes of Tezos have been using their energy efficiency as a selling point for a while now.
Ethereum is larger than every other network. Despite the SOLUNAVAX rally, it still dominates the Layer 1 landscape. It is thought that Proof-of-Stake will make Ethereum more energy efficient, which is something that NFTs will need to gain wider popularity.
Once the merger completes, emissions will plummet. The ETH supply inflates by 4% annually to pay miners. With Proof-of-Stake, emissions will be closer to 1%. Remember EIP 1559? Once emissions drop, the supply could shrink.
It has not been without internal drama despite it being a critical year. Péter Szilgyi caused a stir when he posted a storm complaining of the network’s increasing complexity, and his frustration with having to piece together a broken network. It doesn’t seem unreasonable for the devs to make mid to high six-figure salaries that top the most lucrative Big Tech jobs. I hope the issues are resolved. One way of protecting the developers is to pay them a competitive wage.
The market has had a rocky start to the year, and it feels like the Merge has got lost in the noise. Fans say the event isn’t priced yet, but that should change in the run-up. There was a lot happening in the space last year, and now it’s time for the center stage to be taken by Ethereum. It needs to happen in the next few months. Delays could cause the market to lose faith in Ethereum.
Gas fees are cheaper than they’ve been, but Layer 2 needs to take off in earnest. Arbitrum is leading the efforts, but its total value locked is nothing compared to the billions deployed across DeFi. It is not easy to convince users to migrate yet. StarkNet should live up to the expectations.
In comparison to last year, there has not been much to be excited about in recent weeks, with the weak price action, decreasing trading volumes, and of course all the macroeconomic uncertainty. The most important year for the network is 2022. If the internal problems are solved and Proof-of-Stake happens without a hitch, it will be difficult to see it coming close to death. I’m placing my bets on the other side.
Featured photo source picjumbo.com