Ethereum’s imminent transition to a proof-of-stake consensus mechanism will transform its monetary policy, potentially making ETH more scarce than Bitcoin.
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Ethereum researcher, Vivek Raman, is convinced that Ethereum’s upcoming transition to a proof-of-stake (PoS) system will enable it to take over Bitcoin’s (BTC) position as the most prominent cryptocurrency.
“Ethereum does have, just from an economic perspective and because of the effect of the supply shock, a chance to flip Bitcoin,” said Raman in an exclusive interview with Cointelegraph.
The Merge, a long-awaited upgrade that will complete Ethereum’s transition from a proof-of-work (PoW) to a proof-of-stake system, is set to take place in September. In addition, The Merge will transform Ethereum’s monetary policy, making the network more environmentally sustainable and reducing ETH’s total supply by 90%.
“After The Merge, Ethereum will have lower inflation than Bitcoin. Especially with fee burns, Ethereum will be deflationary while Bitcoin will always be inflationary. Although, with every halving, the inflation rate goes down,” pointed out Raman.
While Bitcoin will retain its function as digital gold, according to Raman, Ethereum will still have “a larger adoption space” as the base layer of the decentralized finance (DeFi) economy.
The Merge won’t reduce Ethereum’s high transaction fees, which is still the main issue preventing Ethereum from scaling. That is not an issue, according to Raman, as Ethereum will rely on layer-2 scaling solutions to support most users’ activity:
“Users need to learn that all of their activities should be on layer 2 and then layer 2s ultimately will use Ethereum as a base layer 1 for settlement and security and decentralization.”