Why Ethereum Merge will be game-changing for DeFi and crypto investing – TechNode

Ethereum post-Merge will be much more attractive to institutional investors keen on ESG and earning stable yields, writes Wei Zhou of Coins.ph. Here’s why.

Ethereum’s big upgrade taking place this week, known as “The Merge,” is creating a lot of excitement in the crypto market — and for good reason. It will likely be looked back on not just as the most important industry event of 2022, but as a major inflection point in the history of blockchain.

Ethereum Merge refers to the fusion of Ethereum’s mainnet, the execution layer currently secured by an energy-intensive proof-of-work system, with the Beacon Chain, a separate consensus layer based on a proof-of-stake mechanism. Once complete, blocks of transactions will be added to the Ethereum blockchain exclusively via proof-of-stake verification, eliminating the role of Ethereum miners and their heavy carbon footprint. There are many different aspects to Ethereum Merge that touch on all different parts of the crypto world, and it’s only the first step in a detailed roadmap for Ethereum described in shorthand as the “Merge, Surge, Verge, Purge and  Splurge.” The upshot is that these changes will massively expand the Ethereum ecosystem’s scalability.

Like with any big event driving the crypto narrative, there has been price action in ETH on many exchanges as the expected mid-September completion date of the Merge rapidly approaches. ETH holders need to understand that this is not just a turn-key upgrade, but the beginning of a long-term process. That being said, one important outcome is that there will likely be greater interest in Ethereum from the financial sector.

The first big reason is ESG — environmental, social, and governance. The shift from an energy-consuming asset to an energy-neutral one is a huge deal for institutional investors, who are more focused than ever before on ESG factors, with environmental impact first and foremost. Concerns over the carbon footprint of proof-of-work-based cryptocurrencies (which notably include Bitcoin) have been one of the most important obstacles to large institutions deploying more capital in the space. The Merge means that, at least in the case of Ethereum, that particular objection will be completely neutralized.

Second, the nature of the proof-of-stake mechanism will significantly enhance ETH’s attractiveness to large financial investors by introducing a yield-like characteristic to ETH holdings.

To understand why, you need to know a little bit about how proof-of-stake works, and how it will be implemented on the Ethereum blockchain going forward. Post-Merge, Ethereum transactions will be verified not by miners performing computations, but by validators locking up (staking) their own money (in ETH form) as collateral to ensure that they perform the verification diligently and honestly. In return, validators that successfully add blocks to the blockchain earn monetary rewards for their work. In the Ethereum…