Ethereum has successfully completed The Merge in what has been described as a historic achievement in crypto history. The chain has now transitioned from a Proof-of-work (PoW) consensus to a Proof-of-Stake (PoS) and has done so without any problems or hiccups.
The Merge has been five years in the making. It marks a crucial turning point not just for the crypto industry but also for the P2E and NFT sectors.
And we finalized!
Happy merge all. This is a big moment for the Ethereum ecosystem. Everyone who helped make the merge happen should feel very proud today.
— vitalik.eth (@VitalikButerin) September 15, 2022
The Ethereum Merge: Implications in The Immediate Future
The successful transition from PoW to PoS has fundamentally altered the architecture of the Ethereum chain. The event will, first of all, change how the network is validated.
Although Proof-of-work validation mechanisms are considered to be secure, they are energy intensive and relatively slower than proof-of-stake. In fact, Ethereum estimates that the transition to PoS will cut energy consumption by as much as 99%.
The Merge will also fundamentally change how Ethereum tokens are created and the costs involved therein. Before the event, ETH tokens could only be generated through mining, a process that requires extensive computing power and lots of energy.
However, from now on, ETH will be generated through staking. While staking is a bit riskier than mining, it is a low-cost and sustainable way to generate ETH in the longer term.
Why The Merge is A Big Win for P2E Gaming
The implications of the Ethereum Merge on P2E, metaverse, and NFT gaming will be huge. To better understand these implications, it is important to go back to the original rise of P2E gaming. You see, most blockchain NFT games that went on to dominate the market started on Ethereum.
Most of them are still part of the Ethereum ecosystem, and it’s not hard to see why. The chain offers some of the best developer tools in the world under the Ethereum Virtual Machine or EVM.
The EVM was, in fact, the most significant development in the growth of decentralized applications, P2E games included. It allowed developers to create innovative decentralized products without necessarily owning or developing a blockchain of their own.
This meant that Ethereum helped cut the costs and the time it took to build and launch a P2E game. As a result, the heavy hitters of the P2E and NFT gaming industry chose the chain.
This includes games like Axie Infinity, the biggest P2E game in the world. Ethereum is also home to Decentraland and The Sandbox, two of the biggest metaverse platforms in the world.
Solving the Scalability Problem on Ethereum
As P2E games gained global acclaim, there was still one nagging question. Could they still scale on the Ethereum chain?
Although Ethereum had provided a low-cost way to build and deploy web3 games, due to network congestion and high gas fees (caused mainly by the PoW consensus), many P2E games became too expensive to play.
In fact, Axie Infinity, which was by then the biggest game on Ethereum, built its own Ronin sidechain to address these problems. Other games started to look for alternatives.
However, the transition from the proof-of-work to Proof-of-stake is a game changer for Ethereum. It means that developers can scale decentralized games without leaving the Ethereum ecosystem or deploying layer-2 scaling solutions. The Merge also means that the high gas fees often associated with Ethereum-based P2E games are now a thing of the past.
The State of Ethereum in P2E Gaming Right Now
As noted above, the Merge was an event that took five years to roll out. However, during that time, a lot of things happened. But from a P2E point of view, we have seen the launch of powerful Proof of Stake chains that have become quite attractive for P2E developers.
As a result, Ethereum has been slowly pushed out of the P2E gaming sector by Solana, Wax, and others. In fact, according to this blockchain gaming report released by Dappradar and the Blockchain Gaming Alliance (BGA), Ethereum is no longer among the top 5 P2E gaming protocols in the world. That list is now dominated by Solana, Wax, Matic, Hive, and the Binance Smart Chain, in that order.
Also, the BGA report found that Ethereum is losing ground regarding NFTs. Although the chain was at the center of the NFT trade in 2021, it has since dropped from the pecking order primarily because of the high gas fees.
According to our analysis of BGA data, trading volume for game-related NFTs on Ethereum dropped by around 14% month-on-month. On the flip side, Solana saw an increase of around 171% over the same period. Even Ronin, the chain supporting Axie Infinity, saw a month-on-month increase of 27% despite facing major setbacks this year.
Will The Merge Push More P2E Games to Ethereum?
Ethereum remains the most dominant platform for DAPPs. It is still home to many top games as well. The transition to PoS will play a key role in cementing its place as the ultimate platform for decentralized applications.
However, it is unclear if this will translate into more P2E projects. Ethereum is already facing massive competition in the P2E sector from other established Proof-of-stake chains. Breaking this dominance will take time.
Nonetheless, the Merge is a good thing for the broader P2E sector. Developers who have always wanted to build P2E games on Ethereum can now do so without worrying about the high gas fees. This will likely push more innovation in web3 gaming in the future.
The Merge also symbolizes the end of proof-of-work blockchains, at least from a futuristic point of view. There are still several chains that are using Proof-of-work consensus, including Bitcoin. But these platforms have no visible stake in blockchain gaming.
