The Ethereum Merge
Happy Merge Week! Do you feel like you just lived through one of the most financially-impactful software updates in recent human history? We sure do! Whether you stayed up and attended a watch party or were peacefully sleeping through the successful completion of The Ethereum Merge, we thought it would be appropriate to cover what The Merge means for gaming and the cryptocurrency space.
So, what even is The Merge in the first place? Without getting too technical, the Merge transitioned Ethereum from a Proof-of-Work to a Proof-of-Stake consensus mechanism. Proof-of-Work on Ethereum meant that miners competed against one another by using powerful computer hardware to solve complex maths problems in exchange for freshly minted ETH. Only the miner who solves the problem first gets the ETH and gets to produce a new “block” on the blockchain, which is what makes the whole thing competitive. The transition to Proof-of-Stake means that miners are no longer required to move the blockchain forwards with new blocks, with that job now being done by Proof-of-Stake node operators. These Proof-of-Stake validator nodes must meet minimum system requirements, as well as have a minimum of 32 ETH staked. This means that while block producers no longer need expensive GPUs to produce blocks on, the cost of a validator is still considerable.
Well, it just so happens that Ethereum was one of the only Proof-of-Work blockchains where using a GPU — a Graphics Processing Unit — was still a profitable way to mine. This led to many intended and unintended consequences. As many have probably heard — directly or through the grapevine — this led to vastly inflated GPU prices, during a time when global supply chains were not functioning correctly and demand for GPUs was higher than ever given that mining was so profitable. Now that the era of Proof-of-Work ETH mining has come to an end, this means that the supply shortage and price increases are liable to get turned on their head, as individuals who made investments into GPUs for the sole purpose of mining may now look to recuperate some of their investment and flood the market with used GPUs. All of this is to say: if you have been waiting for GPU prices to come down so that you can pick up the latest and greatest for your gaming PC at a reasonable price, now might be your chance!
In theory, The Merge should be incredibly positive for cryptocurrencies. Many outside of the space have been consistently fed biased media reports about the energy consumption of Proof-of-Work, especially as it relates to NFTs. The Merge is purported to reduce the energy consumption on the Ethereum network by upwards of 99%. While a lot of damage has already been done by the media, the fact remains that concerns around the energy consumption of the Ethereum network and NFTs can largely be put to rest now. Another big positive for Ethereum is that the supply will become deflationary via a burn mechanism, a tokenomics tool that we have written about before. The road forwards may not be all sunshine and rainbows, though, as there are sure to be some kinks that need ironed out, especially as it relates to the “ETHPoW” fork and potential transaction replay issues.
All in all, The Merge was a massive technical achievement: effectively hot-swapping the engine of a $200B+ machine, while it is still running. We are incredibly excited about the future of Ethereum, as well as the future of gaming, now that GPU mining is largely a relic of the past.
We hope that you will join us on our quest to GamiFi Everything as we enter this new chapter in the history of programmable money. Oh, and one last thing — don’t forget to follow us on Twitter so that you don’t miss any more posts like this!