Next week, the world’s second-most valuable crypto project, Ethereum, will complete a software update known as the “Merge.”
It’s scheduled to go live next Friday.
And if all goes well, it will slash the amount of energy the Ethereum blockchain uses to secure transactions.
It will also cut the amount of ether (ETH) in circulation. That’s the cryptocurrency native to the Ethereum blockchain.
The Merge will be the first time a blockchain of this scale has attempted such a radical overhaul.
And together with the breakneck growth in adoption (more on that later), it’s great news for folks who hold ETH.
It’s also great news for folks who take the plunge and buy now.
Right now, Ethereum has a “market cap” of about $200 billion. That’s the sum value of all ETH in circulation.
But world-renowned crypto investing expert Teeka Tiwari says Ethereum will become more valuable than Microsoft (MSFT), Apple (AAPL), Google (GOOG), and Facebook parent Meta (META) – combined.
That will give Ethereum a multitrillion-dollar value… and make it one of the best investments of the next decade.
First, it’s important you grasp the difference between bitcoin (BTC) and Ethereum.
If you’ve been reading the Cut for some time, you’ll know we’re bullish on bitcoin.
It’s the world’s safest digital store of value.
That’s why colleague Teeka Tiwari calls bitcoin “gold 2.0.”
It’s gone from a value of zero when it launched in 2009 to a value of about $19,300 today.
Although it’s still highly volatile, one BTC buys you about 11 ounces of gold.
And just like gold, bitcoin doesn’t do much.
You can store it in a digital wallet. You can send it to someone. That’s about it.
But that’s not a bad thing…
Bitcoin’s pseudonymous creator, Satoshi Nakamoto, set out to create a digital version of gold.
Nakamoto made it simple on purpose. If you’re trying to emulate gold online, adding extra functionality doesn’t make sense.
The Ethereum blockchain is what computer scientists call “Turing complete.”
It’s fully programmable. So it can solve any reasonable computational task you give it.
Just like you can build any regular app on Apple’s iOS operating system, you can build any decentralized app – or dApp – on Ethereum. The only limit is the developer’s imagination.
Right now, the most popular apps on Ethereum include…
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Stablecoins, decentralized exchange, and other DeFi (decentralized finance) apps
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NFTs (non-fungible tokens)
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Games
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Metaverse worlds
And this list just scratches the surface. That’s why Teeka calls Ethereum the “world’s most valuable software development platform.” Here he is with more…
The next stage of transformational software development will happen on blockchains… not the internet we know today. And Ethereum is the world’s most widely used blockchain development platform.
In the 1990s, Microsoft was the world’s most popular PC development platform. Google’s Android and Apple’s iOS are the most popular development mobile app development platforms today. Ethereum is – and will continue to be – the go-to platform for blockchain projects.
I’m on record saying the Ethereum “market cap” – the total value of all ETH – will reach a market cap of $1 trillion. And that’s just the beginning. Over the next decade, I predict Ethereum will be worth more than Microsoft, Apple, Google, and Facebook – combined.
And this isn’t some far-off prediction. It’s already a trend in motion.
That’s going by financial results for the first quarter of 2021.
Total transaction fees soared 200x to $1.7 billion compared to the first quarter of 2020.
Over that time, daily active addresses – a stand-in for daily active users – jumped 71%.
And trading volume on decentralized exchanges was up 76x from $2.3 billion to $177 billion.
That’s a sign of powerful momentum. And with the Merge in place, that momentum will accelerate.
Right now, Ethereum uses something called Proof of Work (“PoW”) to reach a consensus on the validity of each new transaction.
This is the same system bitcoin uses. And it’s an energy hog…
In a PoW system, validators known as “miners” race to solve complex math problems.
They do this by running high-tech computers, cooled by fans, 24/7, 365 days a year.
One recent study revealed the Ethereum network uses about 78 terawatt hours of electricity each year. That’s comparable to the power consumption of Chile, a country of about 19 million people.
And a single transaction uses enough electricity to power one American household for about a week.
The Merge gets rid of that system and replaces it with a more energy-efficient way to validate transactions. It’s called Proof-of-Stake (“PoS”).
With PoS, instead of wasting all that energy solving math puzzles, ETH holders can validate transactions according to how many ETH they hold.
They “stake” – or temporarily lock up – their ETH. Then they vote on whether a transaction is valid or not.
And if they’re caught cheating, their ETH is destroyed.
And given the global energy crisis, that’s a big deal.
It’s also important from an investment standpoint.
Whether you agree with it or not, one of the biggest trends right now in the investing world is ESG. This stands for environmental, social, and governance.
Companies are working hard to at least appear to be easing up on their carbon footprints.
If they do a good job, they fit under the ESG category. That means they’ll qualify for inflows from a growing group that wants to invest only in environmentally sound companies and projects.
According to one estimate, assets under management in the ESG category will grow from $35 trillion to $53 trillion by 2025.
And with the move from PoW to PoS, Ethereum will go from environmental scourge to ESG poster child.
So when a fund wants an ESG-friendly cryptocurrency, ETH will be at the top of its list.
That’s the first big advantage of the Merge – radically less energy use and increased investment from ESG funds.
This can get “weedsy” fast… So I’ll keep it high level here.
Rewards paid to validators in the upcoming PoS system will be much lower than the rewards paid to miners in the PoW system we have today.
And that makes sense when you think about it…
Staking doesn’t require an expensive computing kit. You can stake ETH using a laptop and an internet connection. That makes it a lot less costly than mining. So it doesn’t warrant as high a reward.
And according to the Ethereum Foundation, the switch will lead to a 90% drop in issuance of new ETH.
You’ll have more Ethereum adoption because of its new ESG status. You’ll also have a cut in supply.
And because the price of ETH is governed by supply and demand… That means higher prices ahead.
When crypto goes mainstream, the gains will be massive.
And the Merge is an important milestone on the road to mass adoption of Ethereum.
So if you already own ETH, stick with your holdings. Your patience and perseverance through this year’s brutal crypto bear market is about to pay off.
And if you don’t already own some, consider buying some ETH today.
You can do that easily on Coinbase or any other major crypto exchange.
Just make sure not to bet the farm. Crypto volatility is legendary. So start out small and work up from there.
And look out for more from me on the Merge in future updates.
Regards,
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Chris Lowe
September 8, 2022