The main issue limiting the growth of Ethereum's network usage is its low bandwidth. The situation can be remedied by switching from the Proof-of-Work (PoW) algorithm to Proof-of-Stake (PoS). Since a test network on PoS has been in development for a long time in parallel with the current circuit, the "move" to the new algorithm is being called a merge.

Ethereum was the first fully-fledged blockchain with support for smart contracts, which is why it was the absolute dominant player in the NFT and DeFi markets until 2021. However, as network usage grew, so did utilisation, and with it, fees since bandwidth cannot exceed 20 transactions per second. Users are forced to pay miners "tips" so that their transaction gets added to the block as soon as possible. During the days of sales of popular collections or the hype in the DeFi market, the average commission exceeded $50.

The expense of using the network has led to increased demand for competitor networks. Because of this, Ethereum's share of the DeFi sector has declined from 96% in January 2021 to the current 58%.

Ethereum needs faster and cheaper solutions if it is to maintain its leadership among altcoins. Vitalik Buterin opted for PoS since its "environmental impact" is significantly reduced and it's more reliable in the long term. The latter is achieved due both to the growth of decentralisation (there is no need for powerful hardware) and to the risk of losing money to hackers during a 51% attack (if such an attack is detected, the protocol destroys the ETH used).

Only the timing of the merge was an issue since the date for the actual transition has been constantly postponed. Recently, however, more specific dates have been named, and developer Tim Beiko tentatively suggested 19 September last Friday. Within a few days, Ethereum gained 17% against Bitcoin.

Optimism has also gripped the Lido token, which has almost doubled in recent days. The Lido platform represents the stacking in Ethereum 2.0 (the PoS branch) and currently provides about a third of all frozen assets ($6.3 billion of $19.4 billion).

However, the optimism may be premature. The 19 September date is tentative and non-binding, and the merge has been repeatedly postponed in the past. Several major tests are planned for August, after which the development team may announce a new final date for the move. Ethereum fans should stay on the ball!

StormGain Analysis Team

(crypto trading, exchange and storage platform)