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Ethereum is often billed as the only true competitor to Bitcoin, and if the price action for the month of July is anything to go by, the cryptocurrency has certainly left its larger counterpart in the proverbial dust.
To wit, Bitcoin eked out gains of around 20 percent in July, recording its best month so far this year. Ethereum, however, was up an astonishing 57 percent during the same timeframe.
As we’ve noted previously, Ethereum is currently benefitting from the budding excitement around its much-anticipated transition to a Proof-of-Stake (PoS) framework.
As a refresher, the Ethereum mainnet is now slated to become a shard on the Beacon Chain as a part of the Ethereum 2.0 overhaul, thereby completing the cryptocurrency’s transition to a PoS transaction authentication mechanism. This would drastically reduce the cryptocurrency’s energy footprint and attract additional capital from ESG-related inflows. This “merge” event is currently slated for the end of Q3 or early Q4 2022.
Under a PoS transaction authentication mechanism, validators are given the opportunity to authenticate blockchain transactions based on the amount of Ether coins that have been locked or staked in dedicated nodes. In contrast, Bitcoin miners win the right to authenticate transactions based on the amount of energy expended to perform complex computations.
As part of the merge process, Ethereum continues to undergo important testing. For instance, in early July, the cryptocurrency conducted its second-to-last merge test, dubbed Sepolia.
This brings us to the crux of the matter. Ethereum is now set to undergo its last major merge test this week. Dubbed the Goerli testnet, the test is expected to take place between the 06th and the 12th of August 2022.
Ethereum developers announce merge date for Goerli testnet: Aug 6th-12th
This is the LAST STEP before The Merge
— bankless.eth (@BanklessHQ) July 28, 2022
Should the Goerli testnet conclude without major hiccups, it would pave the way for Ethereum to smoothly transition to a PoS framework.
Nonetheless, given the sizable rally that Ethereum has witnessed in anticipation of the merge event, risks continue to mount.
The chart above expresses Ethereum’s price in terms of Bitcoin’s. As is evident, the cross is now approaching a major resistance level. Assuming that Bitcoin’s price remains at the current $23,000 level, Ethereum will encounter this resistance at the $1,780 price level – just 6 percent above Ethereum’s current price of $1,678.
Question 1: What happens during the merge? If Choice 2 or 3 go to Questions 2-5.
— Galois Capital (@Galois_Capital) July 27, 2022
Moreover, there is a growing risk that some of the miners on the Ethereum blockchain would revolt and refuse to transition to a PoS framework. For instance, a survey by Galois Capital revealed that around a third of the miners believe that the Ethereum ecosystem is headed toward a fork, where some miners continue to work on the PoW-based ETH1 blockchain.
Nonetheless, we do not believe that ETH1 would have any substantial staying power, given its similarity to Ethereum Classic. Moreover, ETH2 stands to attract substantial ESG-related inflows, which should provide a much-needed boost to the nascent PoS-based ecosystem.