Apples and oranges? How the Ethereum Merger Could Affect Bitcoin

It’s been a month since Ethereum said goodbye to an important feature that its blockchain shared with Bitcoin (BTC). Called the Ethereum Merge, the long-hyped upgrade was celebrated widely, with the blockchain ecosystem. However, to the general public or even to the average trader, it felt more like a Star Wars day celebrated by sci-fi nerds than an early Christmas.

When the Ethereum merger happened on September 15, the most extensive blockchain ecosystem parted ways with proof-of-work (PoW), the energy-hungry consensus mechanism that makes Bitcoin tick. The Ethereum blockchain now operates on a more environmentally friendly proof-of-stake (PoS) mechanism that does not require any mining activities, leaving thousands of miners worldwide scratching their heads.

In terms of price, Bitcoin has yet to take a hit from the fundamental shift of its closest competitor. A full month has passed since the Ethereum merger and the BTC price is still stuck between $18,000 and $20,000.

However, the overarching mainstream narrative of “Bitcoin should contribute to the world, not destroy it by draining energy resources” is being revived with Ethereum’s significant transition to a system that keeps the blockchain alive with minimal resource consumption.

Ethereum avoided a dead end

Cointelegraph reached out to industry insiders to get a clearer picture of the Ethereum merger’s impact on Bitcoin.

“PoW was a dead end for Ethereum,” says Tansel Kaya, a lecturer at Kadir Has University and CEO of blockchain developer Mindstone, “because an Ethereum network that doesn’t scale can’t live up to its promise.”

However, the Bitcoin community is not happy with the way their biggest prize competitor took, according to Kaya. The BTC community often criticizes PoS for being vulnerable to censorship, he noted, adding:

“If what [Bitcoin maximalists] if true, Ethereum will either turn into a docile fintech network censored by governments, or a centralized structure like EOS, controlled by wealthy investors.”

Speaking to Cointelegraph, Gregory Rogers, CEO and founder of crypto-based gifting platform Graceful.io, noted that the merger solidified the two distinct blockchains’ positions in the market. “Ethereum remains the transaction chain of choice with its increased speed and reduced fees,” Rogers said, adding, “Bitcoin is now the store of choice. They were already moving in this direction, but the merger makes it pretty clear.”

Recent: What new EU sanctions mean for crypto exchanges and their Russian clients

But from a price point of view, UnicusOne multi-chain marketplace founder and CEO Tashish Raisinghani believes the Bitcoin price will take a hit. “The crypto industry had a difficult time due to macro-level challenges that resulted in the current bear market,” he said, adding that the merger would make Ethereum more sustainable compared to Bitcoin, “which has not yet been able to recover from that Chinese mining in 2021.”

PoW is unmatched in network security

Addressing the energy side of the argument, John Belizaire, CEO of eco-focused data center company Soluna Computing, told Cointelegraph that while Ethereum’s switch to PoS could save energy, “it will also undermine the core decentralization aspect of cryptocurrency.”

Although Bitcoin’s PoW consensus mechanism is energy-intensive, it is also fundamental to the blockchain and “is the best choice for any cryptocurrency that prioritizes network security.”

Co-locating flexible crypto mining centers with renewable energy facilities can help stabilize the electrical grid, solve renewable energy problems and provide an abundant source of cheap energy for crypto miners, Belizaire added.

The Merge united crypto miners

Bitmain also lowered the prices of Antminers, the flagship crypto mining service, to help miners return to profit, he added:

Despite the merger, Ether (ETH) miners will not simply forego PoW mining simply because Ethereum Classic (ETC) is no longer minted via mining, according to Anndy Lian, author of the book NFT: From zero to zero. Lian told Cointelegraph that the EthereumPoW (ETHW) project — the result of a post-merger hard fork — is working hard and the mining community is more united than ever.

“These various factors helped the miners offset their operating costs in this bear market and kept them alive.”

Joseph Bradley, head of business development for Web3 service provider Heirloom, compared Bitcoin to “a global element of risk that is correlated to TradFi markets.” Bradley told Cointelegraph that while Ether can be traded in the same way, it still does not have the market depth or size that Bitcoin has. “Do we expect the world to become more or less chaotic in the next few years?” he asks rhetorically and answers:

“Most people would lean towards more chaotic. Security will matter during this time. Bitcoin will become even more important. Expensive energy will create innovation with miners – They will most likely move towards positioning Bitcoin mining as an extension of the electrical grid itself.”

Bitcoin and Ethereum: “Apples and Oranges”

Not everyone agrees that the Ethereum merger will have an impact on Bitcoin. Martin Hiesboeck, head of research at crypto exchange Uphold, dismissed a direct comparison between Ethereum and Bitcoin as “apples and oranges”.

Hiesboeck told Cointelegraph that Ethereum is essentially a “company controlled by venture capitalists,” which is why the move to proof-of-stake aims to improve its economic and environmental credentials:

“Bitcoin doesn’t have to do that. Bitcoin is not a brand. Bitcoin is a computer network. The output represents money. No one owns it. There is no brand. No CEO.”

Khaleelulla Baig, founder and CEO of crypto investment platform Koinbasket, supported Hiesboeck’s argument, telling Cointelegraph that the merger will not have any meaningful impact on Bitcoin as these assets serve different purposes.

Recent: How decentralized exchanges have evolved and why it’s good for users

Bitcoin’s purpose is “to prove itself as a superior store of value to fiat currencies,” according to Baig. The PoW mechanism fits well with the purpose of Bitcoin, “As it helps the network maintain the scarcity of 21 million BTC via the difficulty adjustment rate,” he added.

Bitcoin as a PoW and Ethereum as a PoS network make significant contributions to the crypto-asset ecosystem by competing with their best features. Tansel Kaya sums up: “Having two distinct approaches rather than one is more suited to the spirit of decentralization.”