Developers and crypto enthusiasts aren’t the only ones keeping a close eye on Ethereum’s so-called “merger” in the coming weeks.
Investors will also be alert to the big shift, looking at both opportunities and potential pitfalls.
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What is Merger?
While merger talk has proliferated as change draws closer, real change has been in the works for years.
Basically, merging is a software transition from using proof-of-work to proof-of-stake to validate transactions. The blockchain successfully tested the transition – or Merge, as it is known – in July and the move to proof-of-stake is now expected in mid-September.
The change is significant because proof-of-work consensus involves people solving complex equations in order to validate a transaction, also known as mining. The method, which is also used by Bitcoin, is extremely energy-intensive and therefore considered by many to be environmentally unfriendly.
On the other hand, proof of stake, used by other newer blockchains, allows users to “stake” cryptocurrency in order to be part of a lottery scheme to validate transactions. Although it consumes less power, speeds up transaction time and reduces fees, some opponents claim that the system only favors those with money.
Nonetheless, the merger is coming to the most popular blockchain and those in the industry will be watching closely.
Patel said the implications of the merger will further drive developer interest in new utilities and applications built on Ethereum.
“I think the Ethereum ecosystem — and the many VC-backed projects and businesses built on it — will get a boost,” he said.
Invest in blockchain
While it’s hard to break down venture capital investments into Ethereum alone, blockchain investments as a whole have remained solid even in the slowing market of 2022, according to Crunchbase. Data. Already this year, venture capital-backed startups have received nearly $13.6 billion in funding, just off last year’s record pace when these companies saw $21.2 billion in investment.
While the merger may not be the only driver for new investment, it will likely help as Web3 and its usability matures, said O’Holleran, who also invests in the blockchain and crypto space.
Investors will likely not only focus on Web3 infrastructure platforms now, but also future investments in actual Web3 products to compete with current Web2 offerings, he added.
“I think the merger is more of a part of the equation” that drives investment, O’Holleran said. “But it will lead to more investment in Ethereum projects.”
Accumulations and crypto
Ethereum’s shift could attract more investment in Layer 2 rollups, which help scale Ethereum with off-chain computation.
Finally, the merger should be another step in removing friction associated with mainstream crypto, Patel said. It could also calm price volatility as real builders return to the ecosystem versus just price speculators, he added.
However, before considering new opportunities, investors will keep a watchful eye to ensure the merger goes through successfully, especially those investing around the Ethereum blockchain, Brukhman stressed.
“Everyone will be looking to see what happens,” Brukhman said, adding he doesn’t expect any problems. “Once it’s successful, it removes the risks.”
To learn more about our Web3 coverage, visit Crunchbase’s Web3 Tracker, a new site for checking out startups, investors, and funding news on all aspects of Web3, cryptocurrencies, and blockchain.
Drawing: Dom Guzman
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