What is the impact of eth upgrade?

The impact of ETH upgrade includes multiple aspects: 1. Technical level; 2. Economic level; 3. Market level; 4. Security level.

ETH upgrades, especially major upgrades such as the merger upgrade of Ethereum from Proof of Work (PoW) to Proof of Stake (PoS), will have an impact in many aspects, as follows:

Technical level

• Consensus mechanism transformation: Taking Ethereum merger and upgrade as an example, from PoW to PoS, node verification and block production methods have changed. PoW relies on computing power to compete, while PoS determines verification and block output rights based on factors such as the equity (eth quantity) and pledge time held by the node, which greatly reduces energy consumption and changes the security model of the blockchain.
• Network performance improvement: Upgrades usually optimize Ethereum's underlying network protocol and data structure. For example, through layer two expansion solutions such as state channels and Plasma, the number of transactions that can be processed per second is increased, the transaction confirmation speed is increased, and transaction delay is reduced, so that the network can better support large-scale applications and users.
• Smart Contract Optimization: Upgrades may introduce new smart contract functions and features, or improve the operating environment of existing smart contracts. For example, EIP-1559 introduced in the London upgrade of Ethereum has changed the fee structure of smart contracts, making transaction fees more stable and predictable, and also improving the efficiency and security of smart contract execution.

Economic level

Miners and pledgers
• Miners transform or exit: In the transition from PoW to PoS, a large number of Ethereum miners are facing transformation or exit from the industry. Because a large amount of computing power mining is no longer needed under PoS, the original mining machine and equipment may become worthless, and miners need to find new business directions, such as turning to other PoW currency mining or entering other industries.
  • The rise of the pledge economy: Under the PoS mechanism, users can participate in network consensus through pledging ETH and obtain corresponding pledge rewards. This has given birth to new market entities such as pledge service providers, and users can choose to entrust their ETH to professional pledge service providers for pledge to obtain profits and promote the development of the pledge economy.

Deflation and inflation expectations: Some escalations will change the issuance and destruction mechanism of ETH. For example, EIP-1559 introduces a basic fee destruction mechanism, so that as the activity of Ethereum online transactions increases, some ETH will be permanently destroyed, which will change the inflation model of ETH to a certain extent, which may cause the inflation rate of ETH to drop, and even deflation expectations to appear, affecting the economic value of ETH and the market supply and demand relationship.

Market level

Price fluctuations: Upgrades often bring changes in market expectations, resulting in ETH price fluctuations. Before upgrading, the market may have expectations of the success of the upgrade, the effect after the upgrade, etc. Investors will trade and sell according to their own judgment to drive prices to rise or fall. After upgrading, if the actual effect meets or exceeds expectations, it may further drive price increases; if problems occur or fail to meet expectations, it may cause price declines.
• Market Confidence and Ecological Development: Successful upgrades usually enhance the market's confidence in Ethereum and attract more developers, projects and investors to enter the Ethereum ecosystem. More projects are willing to develop applications based on Ethereum, and more investors are willing to hold ETH to promote the prosperity and development of the entire ecosystem; on the contrary, if the upgrade process is not smooth, it may cause market concerns and panic and affect the stable development of the ecosystem.

Security level

Security improvement: Through the upgrade, security vulnerabilities existing in previous versions can be fixed, encryption algorithms and consensus mechanisms can be improved, and network attack resistance can be enhanced. Under the PoS mechanism, the cost of attacking the network is mainly to obtain a large amount of ETH for staking, which to a certain extent improves the security of the network to a greater extent than the huge computing power cost required for attack under the PoW mechanism.

• New security challenges: New upgrades may also introduce new security risks, such as smart contracts may have compatibility problems in a new upgrade environment, resulting in the exploitation of contract vulnerabilities; in addition, with the development of the pledge economy, pledge contracts and pledge service providers may also become targets of hackers, facing security risks such as private key leakage and smart contract attacks.

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