The merger will make Ethereum more efficient and Bank of America researchers believe this could lead to increased interest from institutions. Bank of America researchers said that Ethereum’s much-anticipated upgrade this week could drive institutional adoption.
Ethereum is the second largest cryptocurrency in terms of market capital. expects to finish its upgrade this week. The upgrade, also known as ” the merge”, will transform Ethereum from a proof of work blockchain into a proof of-stake.
The Merge will make ethereum more energy efficient
This will eliminate miners and allow validators (people who ” stake Ethereum) to maintain the network’s security and operation. According to the Ethereum Foundation, this upgrade will make Ethereum ” more energy efficient.” Researchers at Bank of America believe this could drive institutions’ interest.
Alkesh Shah, Andrew Moss and other Bank of America analysts wrote Friday’s note that “the significant reduction in energy consumption after Merge may allow some institutional investors to buy the token that was previously prohibited from buying tokens that run blockchains leveraging Proof of Work (PoW consensus mechanisms”),”
They also suggested that institutional adoption could be driven by staking Ethereum and generating a “higher-quality yield (lower liquidity and credit risk) as a validator” rather than “on black-box borrowing/lending applications. Institutional investors are more likely to take part in Ethereum staking for yield than they are to borrow Ethereum-based assets or lend them.
Ethereum’s upgrade from proof of work to proof of stake will make the blockchain more green than other proof-of-work cryptos like Bitcoin, which is often criticised for its use of energy.
Proof-of-work mining is used to secure Bitcoin and Ethereum. To process transactions, this system needs miners who can solve complicated mathematical puzzles. It is also a high-energy-intensive business because it requires a lot power.
Future ethereum upgrades will help reduce gas fees
Although this week’s upgrade will make Ethereum more green, it won’t immediately make it cheaper or faster to use. Instead, future upgrades to Ethereum will decrease its high gas costs.
Bank of America acknowledged the fact and stated that this could affect the cryptocurrency’s value this year. According to the bank, “ETH’s substantial price appreciation between mid-July and mid-August could continue to fade as investors digest Ethereum’s seeming imminent transition to proof-of-stake (PoS), will not address scalability issues or high transaction costs and shift to a wait–and-see approach with regard to future upgrades.”