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Coffee read: IMX & The Merge

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What Does the Merge Mean for ImmutableX and the Future of ETH? 

After four long years, the highly-anticipated Ethereum Merge is finally here. Expected sometime between September 15th and 16th, the Ethereum mainnet will merge with the Ethereum Beacon Chain, changing Ethereum’s consensus mechanism from its current ‘proof-of-work’‘ model to ‘proof-of-stake’.’ 

But what does this really mean? 

Consensus mechanisms exist to verify legitimate cryptocurrency transactions and secure blockchain networks. So, while both proof-of-work and proof-of-stake serve the same purpose, the method in which they function differs greatly. 

Proof-of-work (PoW) verifies transactions through a process widely known as crypto mining, where miners compete using supercomputers (or nodes) to solve highly complex, cryptographic puzzles and validate transactions in exchange for block rewards. Unfortunately, crypto mining requires a significant amount of energy and, due to the outrage of many environmentalists, has become rather controversial.  

Meanwhile, instead of using intensive computing power and energy to verify transactions, proof-of-stake (PoS) validators secure the network by locking up or “staking” their tokens within the network. In the case of Ethereum, validators that stake at least 32 ETH are randomly chosen to create blocks. The more ether one stakes, the more likely they are to be picked. It also makes the network safer, shielding it from coordinated malicious attacks which would now require validators to hold at least 51% of the blockchain’s staking tokens. 

So how does this affect the broader Immutable ecosystem? Let’s break down the environmental and economic implications, and most importantly, what this means for Immutable  X NFT and IMX holders. 

Environmental and Economic Impact

While the Merge marks the first small step toward solving Ethereum’s scalability issues, much of its immediate impact revolves around mitigating environmental effects. By transferring to a proof-of-stake network, Ethereum is expected to use 99.9% less energy, significantly reducing carbon emissions across the entire blockchain ecosystem. And with a substantial number of businesses hesitant to experiment with the blockchain due to environmental concerns, the Merge’s meaningful impact on energy consumption may serve as a catalyst for onboarding more financial institutions and large corporations into the industry. 

While this will likely do wonders for the economic impact of Ethereum over time, the biggest economic shift comes within the Ethereum network itself, as the merge applies deflationary pressure to Ether. 

In the current PoW model, the Ethereum network issues about 14,600 ETH per day, with 13,000 going to miners on mainnet and 1,600 from staking rewards on the Beacon Chain. With the merge rendering mining obsolete, the total daily issuance will drop significantly to only 1,600 per day. Factor in the London Upgrade’s burning of gas fees and the new daily issuance of ETH sits at roughly zero. In addition, the Merge will eliminate the need for many mining farms and factories, while also driving down the cost of many once sought-after, high-power GPUs. 

The Future Impact on ImmutableX

By now you’re probably wondering how large of an impact the biggest upgrade to Ethereum’s protocol since its inception will have on the Immutable X ecosystem. Fair question. 

Truthfully, the answer is not much. In fact, the Merge and its subsequent efficiency upgrades will make us better equipped in our mission to power the next generation of Web3 games through 100% carbon-neutral, gas-free NFT scaling technology. And for that, we are incredibly excited. 

As for immediate impacts, the transfer to proof-of-stake will significantly reduce both the energy consumption of Immutable X and its partners. Since day one, we’ve remained committed to purchasing carbon credits needed to offset the energy footprint of any NFT created or traded on Immutable. Lower total energy usage results in the purchase of fewer carbon credits which frees up more resources for Immutable to invest back into ecological sustainability. A win for all. 

 “Although moving from proof-of-work to proof-of-stake should have a meaningful impact on energy consumption for the L1 network, it won’t solve Ethereum’s scalability issues,” says our CEO Robbie Ferguson. “As the leading carbon-neutral NFT platform for gaming, we applaud Ethereum’s move to be greener and see these steps in conjunction with our own as offering even more value for the businesses we’re helping to build and scale.” 

As for Ethereum’s future plans to address scalability issues through sharding, the same mutually beneficial relationship applies. Immutable and Ethereum go hand in hand. As Ethereum’s efficiency improves through sharding, so will Immutable’s, further boosting the performance of our scaling solution. And as Ethereum continues to gain widespread adoption, the need for scaling infrastructure will remain as present as ever.

Many of the promised scalability features around sharding and throughput increases are expected to arrive by the end of 2023. In the meantime, Immutable X will continue to offer unparalleled L2 scaling solutions capable of processing more than 10,000 transactions per second, while acting as a key partner for games that see hundreds of millions of daily transactions. 

All other Immutable X operations will remain business as usual. For all Immutable X NFTs holders, the impact of the Merge is non-existent. Nothing has changed and there’s no further action needed. In the spirit of staking, IMX token holders looking to reap the benefits of Immutable’s growth can stake IMX through our new and improved IMX staking rewards product. We are nothing without our community, and we are so excited to offer a way for our users and supporters to stay mutually incentivized in our long-term success. 

Happy staking and we’ll see you on the other side of the Merge👋

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