Ethereum Merge SOON!! Risks & Opportunities for ETH

It’s only a few weeks away one of the Most consequential crypto events to date Is almost upon us i am of course talking About the eth merge the long-awaited Transition to a new consensus mechanism That could have massive implications for The ethereum network But there are also serious tale risks That you need to know about so in my Video today i’m going to give you an Update on ethereum look at the bull and Bear cases and explain exactly what all This could mean for the price of eth so Don’t go anywhere Now in case you’ve been living under a Rock for the past year and let’s face it Rent rises are heading that way you’ll Know that the ethereum network is about To transition to proof of stake The actual transition is called the Merge and it’s the first step in a Number of upgrades designed to make Ethereum more scalable and hence more Usable Now i’ve covered the upgrades ad nauseam On the channel and i’ll link to a number Of videos below that go into it in much More detail Now the merge has already been launched On a number of public ethereum test nets These include the likes of roxton Sapolia and most recently gurley Gurley made the merge on the 10th of August and while there was a slight drop

In the participation rate it still added Up to another successful merge dress Rehearsal Things were going so well on the test Nets that they’ve even gone through Post-merge upgrades sapolia for instance Recently underwent a simple yet Important update The stars appeared to be aligned and Following these successful test net Merges we got the news that the actual Merge could come even sooner as the Potential date for the big day was moved From the 19th of september to the 15th This was great news for the ethereum Community which has arguably grown a Little jaded by all the memes of Ethereum merged delays however hilarious Some of them may be Now there is a bit of nuance here of Course from the fact that the actual Date is determined by blocks rather than The devs themselves So with that in mind last week the Ethereum foundation disclosed the Official parameters for the main net Merge to take place Firstly on the 6th of september the Bellatrix upgrade will be implemented This is the upgrade that will be Responsible for setting the rest of the Merge process in motion The next step after this will be the Triggering total difficulty or ttd at

This block over here This could be reached anywhere between The 10th and the 20th although the devs Have given that narrower timeline Between the 15th and 16th that i Mentioned earlier Ttd is required because this is the Mechanism that will make it unprofitable To mine the proof of work chain and thus Force the merge Now if all this sounds sort of familiar That’s because ttd has also been rather More excitingly termed the difficulty Bomb Now of course many miners protested at This and threatened to fork and then Mine a proof of work chain however these Aspirations appear to have been Short-lived as stable coin issuers like Circle and tether signaled support for The proof of stake chain Given how dependent d phi is on stable Coins this may be the death knell for Any contentious forks Okay so that’s where we’re currently at With the merge and its timeline and There’s a lot of excitement around all This no doubt about it however in the Past few weeks some of that excitement Has turned to concern Concern surrounding the concept of Censorship allow me to explain On the 8th of august the office of Foreign assets control ofac a department

Of the us treasury took the Unprecedented step of sanctioning code And by that i mean they officially Placed the tornado cash smart contract On the specially designated nationals And blocked persons or sdn list I won’t go into it in too much detail Here as i’ve covered it in much more Depth in a previous video and that will Be in the top right but the reason why This had such large implications for the Ethereum network specifically around the Merge is how various stakeholders in the Ethereum ecosystem responded You see because the tornado cash smart Contract was sanctioned this meant that All of those users who had interacted With it could potentially be violating Sanctions All those daps that allowed funds from The smart contract could be facilitating Sanctions evasion Even those miners who mined a block that Had a tornado cash transaction in it Could be falling foul of the law The result was a lot of these services And companies blacklisting the addresses And restricting support for them Examples include Uniswap dydx and arve blocking front-end Access Infurer and alchemy restricting access To their rpc nodes Circle blacklisting all of the addresses

That were associated with tornado cache However none of these threatened the Immutability of the blockchain That’s until we learned that some miners Such as ethermine were censoring Transactions at the protocol level they Stopped including tornado cache router Transactions the moment that the Sanctions were announced This is particularly concerning for the Merge because when ethereum initially Transitions there will be a great deal Of validator centralization You can see exactly who the largest Validators are over here coinbase Binance kraken and lido finance Those validators based in the united States will have to make a decision as To whether or not they’re going to Censor transactions related to the Tornado cash smart contract If enough of them decide to do that then You have censorship at the protocol Level Coinbase’s ceo has said that if this Hypothetical was a thing then they would Shut down their staking operations Instead of censoring We’ll have to take his word for it on That Now even in the case of lido which is a Dow a great many of its backers are Us-based vcs they may control a lot of The supply and hence vote within the dow

To censor these specific transactions More signs of potential censorship on The proof of stake chain came when Flashbots the developer behind mev boost Confirmed that they would be complying With the ofac sanctions to give some Context mev boost is an optional piece Of software for the proof of stake chain Which will separate builders who create The blocks from the proposers who Propagate those blocks It’s basically software that will help Validators extract mev the extra income That validators can earn by Strategically selecting the transactions That they add to a given block Now if this is confusing i’ll leave some Resources about mev in the description Anyways what the flashbot devs were Considering would be to censor the Default relay that it used to pass Pre-built blocks from builders to the Proposers however the flashbots would be Coded to exclude those transactions Involving addresses that are linked to Tornado cache This caused quite a backlash in the Community so much so that the devs Decided that they should aim to get the Code into the developers hands earlier Than planned so they can choose their Own relayers but the fact that Developers of tools used in Proof-of-stake ethereum are already

Considering censorship has ruffled a few Feathers it was also a hot topic at the Ethereum core developers meeting on the 18th of august many of the developers on The call were adamant that the Censorship resistant qualities of the Network should be upheld at all costs For example marius van deveden said Quote if we allow censorship of user Transactions on the network then we Basically failed This is the hill that i’m willing to die On if we start allowing users to be Censored on ethereum then this whole Thing doesn’t make sense and i will be Leaving the ecosystem Despite this stance though it wasn’t Immediately clear what should be done Before the merge in order to prevent the Censorship risks i just mentioned Some were calling for slashing of those Validators that would censor Transactions called social slashing now The best argument i’ve seen for this is By researcher and blogger eric wall he Makes the case for social slashing and An ethereum user activated soft fork It’s a really compelling piece and i’ll Leave a link to it in the description Eric even polled many in the ethereum Community as to whether they would Support social slashing and it seems as If most did support the idea the v-dog Himself also replied saying that he too

Voted for it so it’s clear social Slashing right Well it’s definitely not an ideal Solution you’re effectively telling Validators that they should risk Violating sanctions or have their stakes Slashed if these were the likes of Exchanges for example then it’s the Innocent users who’ll see their deposits Lost Moreover there’s a risk of a chain split If enough of the larger validators Decide to go down the censorship route Essentially by opting for the social Slashing option the developers are Asking larger validators to choose Between continuing on the current chain And breaching sanctions or complying With ofac and coordinating with other Validators to split the chain Now this is explained in more detail in This twitter thread by justin bonds Which i’ll leave in the description for You as well it’s definitely a messy Situation and there could be collateral Damage The main question then becomes if the Collateral damage is worth it it’ll be Interesting to see how all this develops Over the coming weeks as we roll closer To the merge It’s also worth noting that there is Some political pushback against these Sanctions too lobby groups such as

Coincentre seem to be staging defenses And politicians such as representative Tom emmer have also been pushing back This is a story that’s going to run and Run and its outcome will have enormous Consequences for all of cryptocurrency Moving on though there is something else To really look forward to about the Merge and that’s the change in eth’s Tokenomics and their impact on the price So let’s look into that shall we I’m sure you’ve all no doubt heard about The triple halving it’s the massive Inflation reduction that will come to The ethereum network because of the move To proof of stake With the bitcoin halving we know that Block rewards halve every few years as We move closer to a protocol defined Limit This cuts the inflation rate by about 50 Percent However with ethereum there will be a Number of factors that are going to be Coming together that will seriously Reduce each inflation for one the move To proof of stake is expected to drop Each issuance from about 4.13 To zero point four nine percent post Merge This is about a ninety percent reduction In the emission rate which equates to Roughly three halvings so that’s where The saying comes from

And if you subscribe to the school of Thought that bitcoin halvings are priced Positive a triple eath halving should Make you like three times as bullish hey Maths Now in all seriousness though a reduced Supply with a constant demand should be Price positive and then of course you Also have to take into account the Impact that fee burns will have on that Supply As a result of the london upgrade from Last year a small bit of eth base fees Are burned which also impacts on the Available eath supply These burns are of course variable and Will differ based on network use Current burn rates are about 400k ether Year which if consistent would drop the Eath supply growth to a smidge under 0.2 Percent per year But the real kicker is that if network Demand on ethereum surges post-merge Then this could lead to a great deal More fee burns and eth could even become Deflationary This is something you can actually Simulate for yourself over on Ultrasound.money Negative issuance means you will have a Deflationary currency currency that’s Gradually decreasing in supply and thus Becoming much more valuable Naturally this should be price positive

However this may not have an immediate Impact post merge as it will take some Time for the supply and demand dynamics To play out Moreover there are a number of other Factors that will impact the price Around the merge some to the upside Some to the downside For this analysis i’m going to borrow From a blog post by the one and only Arthur hayes it’s called ethflexive and I’ve linked to it below Essentially in this piece he tries to Apply george soros’s quote theory of Reflexivity to the eth markets Especially as it relates to the merge This theory was something that soros Actually detailed in a book that he Wrote called the alchemy of finance What the theory posits is that there is A feedback loop between market Participants and market prices quite Simply the actions of market Participants around a particular event Or situation could actually influence How the event plays out Anyways in hayes’s reflexivity model he Has a number of inputs and outputs on The input side we have the event which Is of course the merge Then you have the structural flows that Will impact on the supply As i mentioned earlier the amount of Supply is impacted by the amount of burn

Which is driven by usage And when it comes to that there are two Factors that investors will need to Consider when choosing which layer one Network to use Firstly you have mind share which is Basically how well the network is known In the online sphere It’s no secret that the interest in Ethereum for example tracks the price The higher eth goes the more people Search for it and the more mind share There is The more people buy the higher the price The more mindshare and so on and so on Then secondly you have applications That’s driven by how many developers are Building on the network the number of Developers is related to the number of Users on the network and given that the Number of users is related to the price That means that the number of devs and Dapps must also be related to price This means that users and developers Share a reflexive relationship with eth Now when it comes to the outputs of this Model we have the amount of eth being Burned as we’ve established this is Related to network demand which is Driven by dap usage and number of users Which is itself driven by price Naturally by the transitive property That means that the level of deflation The burn has a reflexive relationship

With the price of eth In the most basic of terms a higher Price translates into more deflation Now there are two outcomes around the Merge it happens or it doesn’t In the case of the former there will be A positive reflexive relationship Between the price and deflation eth will Be bought today knowing that higher Prices will translate into higher burns Using the logic we just explained However if the merge doesn’t happen we Will have a negative reflexive Relationship People will know that the expected Deflation is not coming and hence won’t Want to hold eth Now hayes does of course mention that There will be a flaw here that’s because Merge or not ethereum is still the Dominant layer 1 and has the vast Majority of dapps built on it Hayes thinks that eth won’t go below Eight hundred dollars to one thousand Dollars in this case a reasonable Assumption so that’s the eth theory of Reflexivity the rest of hayes post goes On to look at the market’s view of a Successful eth merge He takes a look at price futures term Structure and futures open interest to Give a rough idea of how traders are Positioned and hedged he then also looks At a number of trading decisions that

One can take in order to both position For a successful merge and to hedge Against an unsuccessful one For the sake of time i won’t go into any Of these here but i do encourage you to Read the post at your leisure it’s well Worth your time Now we of course can’t discount the Potential for a buy the rumor kind of Event around the merge That is that prices could fall Immediately post-merge as people sell The news However because of the unique dynamics Around a halving this cannot be Guaranteed something i tend to agree With Hayes then concludes by saying that he Won’t be reducing his position going Into the merge or after it in fact he May even add to it if the market sells Off post merge because quote i believe The best is not and cannot be priced Into the market today Wise words from a trading sensei Okay time for some of my own thoughts on The eth merge firstly in case the merch Didn’t make it obvious this is all my Opinion as a non-financial advisor so i Do encourage you to dyor in conjunction With your financial advisor Having said that i am cautiously Optimistic that the merge is going to go Ahead as planned

The devs have been working tirelessly And numerous test net mergers have all Gone off without any major issues Moreover the threat posed by Proof-of-work forks appears to have been Neutered by the overwhelming Institutional support for the Proof-of-stake chain Yet that institutional support is a Double-edged sword and that’s because of The unfortunate situation we found Ourselves in due to the tornado cash Sanctions it’s still not entirely clear As to how the community is going to deal With the risk of protocol level Censorship But one thing is for certain no Validator is going to risk 30 years in Prison no matter how strong the need for A permissionless ledger Could the ethereum developers implement Social slashing or is the censoring of Tornado cash transactions a choice that Should be left up to the validators Is it something that we’ll have to lay Upon the altar as a sacrifice for that Holy institutional adoption i don’t know But it’s something i’ll be keeping a Super close eye on as we approach the Merge and of course another thing that I’ll be keeping an eye on is the eth Price that triple halving is no joke and If the price is positively reflexive to The burn then we could see some serious

Upside potential as we roll closer to The merge date higher prices drive more Users which drives more devs which Drives more daps which drives more burn Which drives a higher price it’s a Heavenly cycle that maybe even george Soros himself is keeping an eye on With all that said though there are Still risks there is a non-zero chance Of a severe even cataclysmic event Around the merge No matter how many test net merges one Does it can never really compare to a Live push Hundreds of billions of dollars are on The line and there is only one shot that Can be taken As such if you are investing based on a Bull case of the merge as i am then you Have to be aware of these risks Never invest more than you can afford to Lose and manage your expectations Accordingly And that’s it for my ethereum update Today it really is an exciting time and I would love to get some of your Feedback on it all so are you bullish on The merge or are you concerned about Transaction censorship what are your Price predictions i’d love to know in The comments below something else that You’ll find down there is my socials Page it has the links to all the other Places that you can follow me including

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