The meme tokenShiba Inu (SHIB -3.48%) has not fared well this year, and the price has fallen about 65% this year. It’s not just Shiba Inu; the entire crypto market has been hit hard amid high inflation, which has triggered the Federal Reserve to aggressively raise interest rates. But now there are some potential catalysts that could drive the price of Shiba Inu higher, namely Ethereum‘s (ETH -1.81%) highly anticipated Merge and the future launch of an initiative called Shibarium. Let’s take a look at how each could affect Shiba Inu and which one might be the bigger catalyst.
If you follow crypto, then you’ve undoubtedly heard about Ethereum’s upcoming Merge, which is expected to happen next week. The Merge will officially transition the Ethereum network from one that used a proof-of-work (PoW) mechanism to validate transactions, create new blocks, and mine new tokens to a proof-of-stake (PoS) mechanism.
PoW involves miners using a ton of computing power to solve a cryptographic puzzle as fast as possible to earn new tokens, while PoS involves people staking their tokens to be entered into what is essentially a lottery system to have the chance to validate transactions and mine tokens. PoS is a lot more energy-efficient than PoW, which has been criticized for its damaging impact on the environment.
So how does this affect Shiba Inu? Well, Shiba Inu is an ERC-20 token, meaning it was built on the Ethereum blockchain, so updates to the Ethereum blockchain are essentially updates to Shiba Inu as well. This is certainly a positive because now Shiba Inu will be more energy efficient, too.
Additionally, more upgrades down the line should also ease network congestion by enabling Ethereum to process more transactions per second, which should in part enable the blockchain to lower transaction fees. Again, the Merge is certainly a positive for Shiba Inu. But considering there are reportedly hundreds of thousands of tokens built atop the Ethereum blockchain, it’s hard to imagine that this would be a huge positive for Shiba Inu alone unless it benefits all of the other ERC-20 tokens in a big way as well, which seems unlikely right now.
Shibarium is a Layer 2 scaling solution, which will be built on top of the Shiba Inu protocol and allow Shiba Inu to act more like an individual network. This could help Shiba Inu further expand and ease congestion.
As an ERC-20 token, when there is congestion on Ethereum, it spills over to Shiba Inu. If Shibarium can help ease some of this congestion, then network users might see lower transaction fees.
Additionally, Shibarium will implement a burning mechanism. Shiba Inu is often criticized because of how many tokens it has in circulation. A cryptocurrency like Bitcoin is sometime considered attractive because of its finite 21 million tokens, which some believe makes the world’s largest cryptocurrency a hedge against inflation. Shiba Inu currently has 589 trillion tokens in circulation,so the more the network can burn the better.
Speculation had been circulating that Shibarium might be launched as soon as this month, but Shiba Inu’s team recently silenced that chatter on Twitter, saying: “no dates for Shibarium have been posted or authorized for release.”
Which is the bigger catalyst?
Both the Merge and Shibarium could help lower transaction fees and create a better network for Shiba Inu overall. But I think Shibarium could be more of a game-changer here because it is more specific to Shiba Inu, whereas the Merge affects all ERC-20 tokens.
Additionally, Shibarium will help burn more Shiba Inu tokens and could be a jumping off point for other projects within the Shiba Inu universe, such as the network’s plans for the metaverse.
I am still not convinced that Shiba Inu has any real advantage over other cryptocurrencies from a technical standpoint, particularly given its lack of real-world use cases. Perhaps after Shibarium is introduced the token may have superior technical capabilities. But for now, I am avoiding this meme token.
Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Twitter. The Motley Fool has a disclosure policy.
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