Last week\u2019s Merge was the \u201cmost significant development in the history of the Ethereum network,\u201d according<\/a> to Fidelity Digital.\u00a0<\/p>\n And from a purely technical standpoint, the blockchain network\u2019s transition from a proof-of-work (PoW) to a proof-of-stake (PoS)<\/a> consensus mechanism was a marvel. Widely compared<\/a> to changing a jet engine mid-flight, the software upgrade proceeded with nary a glitch on Sept. 15. <\/p>\n Overnight, too, Ethereum, the world\u2019s second-largest blockchain platform, reduced its energy usage by 99.95% from a rate as high as 94 TWh per year in May \u2014 roughly equivalent to the nation-state Chile \u2014 to an almost negligible 0.01 TWh on Sept. 16, according<\/a> to Digiconomist. <\/p>\n This should carry some weight with regulators threatening to clamp down on blockchain networks for environmental profligacy. It could also bring more institutional investors into the crypto space. <\/p>\n To this last point: Institutional investors like pension funds, insurance companies, foundations and others matter because they tend to be longer-term investors and are not inclined to trade on rumors or overreact to 24-hour news cycles. Broad participation from this group could help solve crypto\u2019s persistent liquidity and volatility problems. <\/p>\n Yet, others believe that while the Merge offers corporations and large financial institutions a more eco-friendly platform, as well as new staking opportunities, it doesn\u2019t yet solve one of Ethereum\u2019s core deficits: its lack of scalability. Not yet, anyway.<\/p>\n \u201cThe Merge is a watershed moment for the crypto industry, but the impact to accelerate adoption by institutional investors will take more time,\u201d Jim Kyung-Soo Liew, associate professor at Johns Hopkins University\u2019s Carey Business School, told Cointelegraph.<\/p>\n \u201cEthereum does not have a better statement on TPS [transactions per second],\u201d John Peurifoy, co-founder and CEO at Floating Point Group \u2014 a trading platform provider \u2014 told Cointelegraph. The Merge doesn\u2019t increase block size or block speed. \u201cWe\u2019re not there yet.\u201d That will have to wait for the Surge, another Ethereum upgrade scheduled for 2023. That will implement a sharding solution that could boost network speed dramatically. <\/p>\n Still, solving the energy consumption problem and reducing carbon emissions are no small achievements. Ethereum\u2019s carbon footprint, once as large as Finland\u2019s, now compares<\/a> to the Faroe Islands, said Digiconomist. Or, put another way, a single Ethereum transaction is now \u201cequivalent to the carbon footprint of 44 Visa transactions or 3 hours of watching Youtube.\u201d<\/p>\n \u201cThe bolstering of Ethereum\u2019s environmental, social and corporate governance (ESG) credentials should be good for regulatory-driven institutions that want to start to explore the Ethereum ecosystem,\u201d Marc Arjoon, Ethereum Research Analyst at CoinShares, told Cointelegraph, while Jack Neureuter and Daniel Gray, writing in Fidelity Digital\u2019s Report on the Merge, added<\/a> that the transition to PoS could have \u201ca positive reinforcing effect for those who feel strongly about the environmental impact resulting from the usage of blockchains.\u201d<\/p>\n Indeed, two Bank of America analysts recently suggested<\/a> in a note to clients that some institutional investors who were previously \u201cprohibited\u201d from investing in PoW-generated tokens could now participate:<\/p>\n \u201cThe significant reduction in energy consumption post-Merge may enable some institutional investors to purchase the tokens that were previously prohibited from purchasing tokens that run on blockchains leveraging proof of work (PoW) consensus mechanisms.\u201d<\/p>\n The Merge also introduces other potential benefits for traditional financial institutions. \u201cEthereum\u2019s shift to proof-of-stake makes ether an asset which can earn interest for holders in the form of staking,\u201d noted Fidelity Digital. This could increase the total return for Ether (ETH<\/a>) holders and \u201cmay make the asset more attractive to prospective investors.\u201d<\/p>\n \u201cOne reason to be excited\u201d if you\u2019re an institutional investor, said Peurifoy, is that you can stake your ETH as a PoS Ethereum validator and receive about a 5% annual percentage yield (APY). \u201cThat\u2019s a pretty good rate, and it has relatively low risk associated with it.\u201d <\/p>\n Staking could come at a cost, though. In a Sept. 15 article headlined \u201cEther\u2019s New \u2018Staking\u2019 Model Could Draw SEC Attention,\u201d the Wall Street Journal reported that United States SEC chief Gary Gensler recently suggested<\/a> that Ethereum, with its generous new staking opportunities, could trigger the Howey test \u2014 and U.S. courts might declare Ether a security.<\/p>\n \u201cNow that Ethereum more closely resembles traditional financial instruments, regulators may start to view it as such,\u201d Arjoon told Cointelegraph. In other words, Ethereum\u2019s new staking opportunities might bring in more traditional investors but also SEC oversight in the United States.<\/p>\n The overall supply of Ether could drop as a result of the Merge, which institutional investors might also view favorably. Pre-Merge Ethereum was paying out, creating about 13,000 ETH a day to reward its PoW miners. After the Merge, the network will pay out about 1,600 ETH a day in staking rewards, a 90% drop in new issuance, according<\/a> to the Ethereum Foundation. Meanwhile, a portion of Ethereum gas fees continues to be burned or deleted, as they have since August 2021. According to the Foundation:<\/p>\n \u201cAt an average gas price of at least 16 gwei, at least 1,600 ETH is burned every day, which effectively brings net ETH inflation to zero or less post-merge.\u201d<\/p><\/blockquote>\n \u201cMany people believe that ETH is becoming deflationary,\u201d Peurifoy said, and now comparing that to the United States dollar, which is declining currently at \u201ca pretty massive rate.\u201d\u00a0<\/p>\n \u201cSupply will not only be capped but even reduced, i.e. deflationary through reduced ETH issuance and increased burns,\u201d noted<\/a> consultant Markus Hammer, writing on LinkedIn: \u201cETH might therefore eventually increase in value.\u201d<\/p>\n![](\"https:\/\/s3.cointelegraph.com\/uploads\/2022-09\/7c181620-8bb6-4ace-abc8-71ba293e1616.jpg\")
<\/figure>\nAn increased return for Ether holders?<\/h2>\n
Is ETH becoming deflationary?<\/h2>\n
Is a flippening more likely?<\/h2>\n