Note: blog post outlined and partially written by Jasper AI, which is a software platform that is an AI-powered copy generator and writing assistant.
Key takeaways
The Ethereum merge has created a more unified and powerful blockchain
What does this mean for the future of Ethereum and other cryptocurrencies?
How will this change the way businesses operate and interact with each other online?
What challenges must be overcome in order to achieve widespread adoption of blockchain technology?
Is there potential for Ethereum to become the global currency of choice for online transactions?
Background
Now that the Ethereum network has transitioned from a proof-of-work consensus mechanism to a proof-of-stake mechanism, what comes next for the Ethereum network?
Ethereum’s move to a proof-of-stake consensus algorithm is a significant change for the network. This change will have far-reaching implications for how Ethereum operates and how it is able to scale in the future.
Key Benefits of Moving to Proof-of-Stake
One of the key benefits of moving to a proof-of-stake algorithm is that it is much more energy efficient than proof-of-work. This is important because Ethereum is one of the most energy intensive blockchain networks currently in operation.
The move to proof-of-stake will also allow Ethereum to scale more effectively. This is because the process of validating transactions on a proof-of-stake network is much simpler than on a proof-of-work network.
Ethereum As The “Internet Bond”
In the short term, the move to proof-of-stake will likely have a positive impact on the price of Ethereum. This is because investor confidence in the network will increase as it becomes clear that the Ethereum team is serious about making the necessary changes to scale the network effectively.
The long-term implications of the move to proof-of-stake are difficult to predict.
However, the Ethereum merge has created distinct financial characteristics that make the cryptocurrency extremely attractive from an investment standpoint.
First, for the first time in decades, investors will be looking at alternative asset classes such as cryptocurrencies for more gains as well as hedge against sovereign debt, currency crises, and geopolitical instability.
Examples of digital assets as an alternative asset class include Bitcoin, Ethereum, and non-fungible tokens (NFTs).
Much like investors seeking out additional gains in hedge funds, private equity, real estate, fine art, and collectibles, investors will be flocking to digital assets to both seek greater returns as well as hedge their downside risk.
Second, with proof-of-stake, Ethereum is now a yield-bearing asset (4–12%). This will force investors seeking extra yield to use Ethereum as the benchmark against which all other digital assets will be priced based on the yield.
A similar mechanism occurs in the bond markets where Treasury bills are considered “risk-free” yield bearing assets against which all other assets are priced in; thus, Ethereum has been dubbed the “internet bond”.
Additionally, there is a fixed Ethereum staking period during which investors are unable to withdraw their funds in order to generate the yields that investors are seeking. This will lead to a large supply shock.
Third, Ethereum has financial characteristics that make it behave similar to both a growth as well as a dividend stock, properties unlike any other financial asset previously seen.
These three elements in combination will lead to large institutional interest in holding Ethereum for their clients. Once institutions come in, the combined supply shock along with the huge institutional demand, will cause the price of the asset to rise significantly.
I anticipate that once there is more regulatory clarity and once the benefits far outweigh the risks, institutions will start investing in Ethereum for their clients.
The Ethereum Merge is Only the Beginning
It is important to remember that the move to proof-of-stake is just one part of a larger effort to improve the Ethereum network. The team is also working on other solutions to address the scalability problem, such as sharding and plasma.
The first priority after the merge is to scale the network to accommodate more users and transactions. There are many proposed solutions to this problem, including zk-rollups, and sharding. It’s likely that a combination of these solutions will be used to achieve the desired level of scalability.
With the merge improving security and reducing energy consumption, the Ethereum network will continue to evolve and grow, providing users with a secure and efficient platform for digital transactions. Opponents claim that the move to proof-of-stake has made the Ethereum network more centralized.
The bottom line is that the move to proof-of-stake is a positive step for Ethereum, but it is just one part of a larger journey to scale the network effectively. Only time will tell how successful this transition will be.
About: Dr. Christopher Loo is a physician who became financially free at the age of 29, and retired early at the age of 38, as a result of making strategic investments after the 2008 financial crisis. A graduate of the MD-PhD program offered jointly through the Baylor College of Medicine and Department of Bioengineering at Rice University, he is the author of “How I Quit My Lucrative Career and Achieved Financial Freedom Using Real Estate”, and is the host of the Financial Freedom for Physicians Podcast. He is a regular contributor to KevinMD and has spoken about the importance of financial literacy for Passive Income MD, the White Coat Investor, Board Vitals, SEAK Non-Clinical Careers, SoMe Docs, Doximity, Medpage Today, FinCon, and other high-profile financial brands geared towards high-income professionals. He is passionate about the role that crypto, fintech, and innovation will play in enabling financial freedom, economic inclusion, access and opportunity for the entire world in the upcoming decades.