- The reorganization of the Beacon chain block has raised concerns about the merger’s delay or catastrophic impact on the Ethereum blockchain.
- Layer 2 scaling solutions could be instrumental in the development and scalability of dApps on the Ethereum network, post-merger.
- Analysts have a short-term bullish and long-term bearish outlook on the price of Ethereum.
Vitalik Buterin, co-founder of the Ethereum network, recently told investors that the merger could take place as early as August 2022, if no further issues arise. Although the event has been delayed several times in the past, the Beacon chain that runs parallel to the Ethereum mainnet is ready to merge with the ETH blockchain, moving to proof-of-stake.
Also Read: Two Reasons Why Ethereum Price Could U-turn to $2,100
Could the Ethereum merger be a disaster for the ETH blockchain?
As proponents debate the chances of Ethereum merging successfully, the Beacon Chain recently witnessed a “block reorganization” event, during the last week of May 2022, where the forking continued for seven consecutive blocks. According to Beacon Scan data, seven blocks numbered 3,887,075 to 3,887,081 were cleared from the Beacon Range between 08:55:23 and 08:56:35 UTC.
A reorganization occurs when a block in the chain is taken off-chain due to a concurrent block. This event can occur in response to an attack by a high-resource miner or a bug. Reorganization can lead to unintended forking or duplication of the underlying blockchain, an alarming consequence of a reversed block.
This event is significant because it has not happened for several years and led to a brief crisis of confidence in the community.
Proponents wonder if the merger would be a catastrophic event for the Ethereum blockchain. Outdated node clients have been identified as the cause of the Beacon chain block reorganization.
Preston Van Loon, an Ethereum core developer suggested,
This reorganization is not an indicator of a faulty fork choice, but a non-trivial segmentation of updated and outdated client software.
The reorganization has raised questions in the community about the potential timing of the merger, as Van Loon, Tim Beiko and Vitalik Buterin have pointed out in the past that there could be a delay to the event if issues arise.
Kraken’s Jesse Powell Optimistic About Ethereum Merger Success
While core Ethereum developers and the community are working consistently and methodically to make the merger a success, Kraken CEO Jesse Powell told Decrypt that he isn’t worried about the delays.
While proponents criticize the delays as a sign that the developer community is not up to the task, there are fears that transaction fee issues will only be resolved with the arrival of Merge. . Rising transaction costs are one of the reasons institutional capital and projects are flocking to Ethereum alternatives like Solana, Cardano, and Avalanche. This implies that the Ethereum merger is a high-stakes event, for the DeFi and web3 community and proof-of-stake believers.
Powell doesn’t care about the many delays in the Ethereum merger process, but rather believes that success is more important than speed for an event of this magnitude.
Why merging is the key to lowering transaction fees
The goal of the Ethereum network is to solve the high transaction costs and concerns of the ETH community. Merging is a key step in this direction, changing consensus mechanisms into less energy-intensive and more efficient proof-of-stake.
Experts believe that the merger is considered one of the main steps to reduce gas fees on Ethereum blockchain, layer-2 and sidechain networks. Projects like Polygon network, Ethereum scaling solution, and layer 2 solutions like Optimism, Boba Network, Arbitrum One could be affected by network cost reduction.
Since Layer 2 protocols process transactions independently, they perform more transactions per second at lower gas fees, and then they are added to the Ethereum blockchain later. Moving to proof-of-stake would reduce the need for layer 2 and the Ethereum blockchain itself would process higher volumes of transactions at low cost.
Vitalik Buterin argues, proof of stake offers,
Greater efficiency and their better ability to deal with and recover from attacks.
Alan Chiu, CEO of Boba Network, an optimistic Layer 2 rollup, said:
As Ethereum L1 becomes more efficient, L2s will simply become much more efficient at the same time, while retaining their current additional benefits.
Ethereum on the ETH2 contract has reached an all-time high
10.73% of Ethereum’s circulating supply was staked on the ETH2 deposit contract. 398,000 unique validators staked over 12.76 million ETH, a new all-time high. As the amount of Ethereum staked on the Beacon chain reaches another milestone, it reveals the enthusiasm of investors and market participants for the merger.
Ethereum staked on deposit contract
Ethereum holders continue massive accumulation
Ethereum holders continued to accumulate the largest altcoin before the merger. According to data from crypto-intelligence platform Glassnode, the number of addresses holding at least 10 ETH has hit an 18-month high. The combined holdings of these addresses are 291,608 ETH.
The massive accumulation of Ethereum by holders reveals that investors are undeterred despite the recent drop in the altcoin’s price. 54% of Ethereum holders saw massive gains, completing the narrative of ETH accumulation.
ETH addresses containing more than 10 coins
What’s next after the merger?
Puff, a contributor at Iron Bank, an Ethereum blockchain lending platform, believes that increased scaling opportunities would increase capacity on ETH. Puff argues,
This would bring us a little closer to chains of shards. With the deployment of sharding, we anticipate that the improved scalability and capacity on Ethereum will reduce costs and increase the accessibility of decentralized applications.
Experts expect an increase in participation on the Ethereum network, with increased use of decentralized applications, scalable and fast transaction processing, increased control by individuals over their own assets, and a higher degree of decentralization.
Instead of becoming obsolete, Layer 2 solutions will become a true catalyst for the potential of the Ethereum blockchain. Tyler Perkins, chief marketing officer of zkSync, says the merger could have no effect on Layer 2 solutions.
L2s will be most affected by sharding, which is expected post-merger, as it will increase the amount of data storage available for rollups, dramatically increasing their throughput.
Analysts have a bearish outlook on Ethereum price in June 2022
Based on on-chain activity, fundamental and technical factors, there is a bearish outlook for Ethereum in June 2022. Two key factors could cause the price of Ethereum to drop. Experts believe a DeFi boom could drive Ethereum’s price higher as the altcoin has lost the majority of capital in its dApp ecosystem. As of June 5, the total value locked (TVL) on applications based on the Ethereum network was $68.71 million, 65% of DeFi TVL.
The colossal crash of Terraform Lab’s sister tokens LUNA Classic (formerly LUNA) and UST led to a massive withdrawal of Ethereum’s TVL, it was hovering around $100 billion before Terra collapsed. Analysts believe that TVL could continue to decline in June 2022.
ETH TVL in the dApps of its ecosystem
The second key factor is the bearish indicators in the technical analysis of the Ethereum price chart. Ethereum price fluctuated within a range defined by horizontal trendline support and downside resistance. The pattern is identified as a descending triangle and analysts have predicted a bearish continuation, Ethereum price may resume its downtrend.
The descending triangle could resolve after Ethereum price decisively breaks below its support trendline, then falling to the maximum height of the triangle. If Ethereum price breaks below the lower trendline of the descending triangle, it could drop to $1,350 in June 2022, a 25% decline from current levels.
ETHUSD Price Chart
Ethereum’s price outlook is bullish in the near term, as the altcoin experienced one of the largest selloffs in recent months, where $800 million in orders evaporated from the market. Such a large liquidation volume led to a squeeze and Ethereum price rebounded from the support at $1,715 to reach the $1,900 level.
Ethereum’s total liquidation rate reveals that the bulls are controlling the market, as 90% of orders withdrawn were shorts.
Liquidated Ethereum positions
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