With “the Merge” to Ethereum 2.0, the world’s second largest blockchain network by market cap has been the talk of the town. We have heard and read some postulating that Ethereum (ETH) can succeed even if it does not scale correctly.
The ETH is more than its potential scalability. It stores billions, and eventually, trillions in value and does not need a central monetary authority or bank. However, the necessary key is increased liquidity and decreased volatility.
Bitcoin (BTC) has followed a similar path to Ethereum, with many saying they wanted the BTC network to scale as a priority. They believe that Bitcoin’s success is measured as a rival for Visa, or it will fail, arguing that it must be a method of exchange rather than only a “Store of Value” like gold.
This requirement results in a decentralized network in jeopardy, prone to censorship and government capture. Fortunately, even with the high cost of mining hardware, small block miners have been successful. At the same time, network scaling is happening through “layer-2” (outside the base blockchain layer) solutions and side chains like Liquid and the Lightning Network. And Bitcoin’s base layer can keep its role as an SoV while building its own exchange network.
Ethereum is designed to be the world’s computer with unstoppable code that can run Dapps cheaply and trustlessly. But Ethereum has had to implement a major fix since the DOA hack, forgoing decentralization, and scalability was also jeopardized when the Dapp CryptoKitties broke the chain’s usability. We hope that Ethereum’s move to proof of stake will solve the throughput issues and lower the gas (transfer) fees for base-layer transactions which can be excessive.
Since Ethereum’s Merge, the supply of new ETH is slowing. According to data from Ultra Sound Money, the Ethereum issuance rate has fallen by 98%. Though it has not become deflationary. At the end of September 2022, it is only sitting at 0.09% annualized growth per year with a total of 14,042,583 ETH currently in Ethereum staking contracts, totaling $18.7 billion.
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