GM. This is the Milk Road, the crypto newsletter that uses the best crypto ingredients to bake you a fresh email every day.

It tastes good and is great for your health.

Here’s what’s on the menu for today:

• The Merge 101

• Starbucks teams up with Polygon

• Bite-sized treats

• Meme of the day

THE MERGE 101

2 days.

That’s how long is left until the most anticipated crypto event ever – the Merge.

A lot of people in crypto are hyped like it was the Super Bowl. But some are feeling like Greg here…

I have no idea what the Ethereum merge is and at this point I’m too afraid to ask

— greg (@greg16676935420)
Sep 12, 2022

If you’re in the same boat as Greg, don’t worry – we got your back. Consider this your 2-day crash course. 

Today’s lesson? The Merge 101. We’re gonna break down all the basics, debunk common misconceptions, and tell you what you need to do to prep.

Let’s jump in.

Q: WHAT IS THE MERGE?

The Merge is the biggest upgrade to happen in Ethereum history. It will move from proof-of-work to a proof-of-stake.

The result: Ethereum will use 99.5% less energy.

It’s like when you upgrade your iPhone. Sure, there’s a new look, but the biggest difference…

It’s more energy efficient & takes less work. You don’t need to sit by a charger all day to keep it alive.

Q: WHY IS THE MERGE SUCH A BIG DEAL?

First of all… Ethereum is the second largest cryptocurrency out there ($207b market cap). It’s already been a big success and has thousands of projects built on top of it.

But now it’s about to go through a massive upgrade that could bring even more success (best-case scenario) or send it to the grave (worst-case scenario).

It’s a big move that comes with big risks.

Second, Ethereum will use much less energy than it does now. This is big because:

1/ Less energy use = one less reason for haters to hate

Massive energy consumption has been a big hurdle for Ethereum adoption. Most institutions simply aren’t allowed to invest or use it because of the massive carbon footprint it leaves behind.

Ethereum moving to proof-of-stake changes all of this – the carbon footprint will go from a Shaq size 22 shoe to a child’s size 2.  

This could open up the door for more institutions to invest in ETH.

2/ Ethereum will become deflationary

Since Ethereum will use less energy to run, it will also pay out fewer block rewards to stakers. Estimates say the annual emission in new ETH will drop from 4.3% ->0.4% (10X decrease).

On top of that, there are 2 other factors that make Ethereum deflationary:

• Deflation 1: EIP-1159. No, that’s not the IRS’ new tax form. It’s another software update that went live last year. It burns a portion of every transaction fee and takes it out of the total supply.

• Deflation 2: Staked ETH lock-up periods. There is currently ~$25b worth of ETH being staked (10% of the entire supply). This ETH will be locked for 6-12 months after the Merge. Meaning it cannot be withdrawn and sold.

So… annual ETH emission dropping from 4.3%–>0.4% + EIP-1159 burn mechanism + $25b worth of ETH locked for 6-12 months = a whole lot of deflation.

Btw, if you’re curious to see how the issuance and supply growth will change check out this cool simulator.

Q: WHAT ARE SOME BIG MISCONCEPTIONS?

1/ Ethereum will be faster. Many people think Ethereum will go from having the speed of Tom Brady to Usain Bolt.

That’s simply not true. Yes, Ethereum will eventually get to a speed of ~100k transactions per second, but that will come in future upgrades.

Remember, the Merge is only the 1st of 5 major upgrades – there’s still the surge, the verge, the purge, and the splurge. And yes those are real names, Vitalik was on his Dr. Seuss flow.

2/ Gas fees will be cheaper. I hate to break it to ya but The Merge will not be focused on reducing gas fees.

Instead, Ethereum is relying heavily on Layer 2 solutions to help with that. We’re looking at you Optimism and Arbitrum.

If you wanna check out more misconceptions check out this great resource from the Ethereum Foundation.

Q: WHAT DO I NEED TO DO TO PREP FOR THE MERGE?

There’s a million-dollar saying… sometimes the best thing to do is nothing at all. And this is one of those times.

The Merge is supposed to be a seamless transition for all us normies. It’s like when you upgrade your phone and everything automatically gets transferred over – your contacts, apps, pics, etc.

It’ll be the same thing with all your digital assets – tokens, NFTs, etc.

In fact, if anyone tells you that you need to do something special with your tokens or NFTs – you should run. You’re about to get got…

Well, ladies & gents – that’s a wrap for part 1 of your Guide to the Merge! We’ll be back again tomorrow for Round 2 where we’ll go deeper into what happens after the Merge, what the biggest risks are, and how people are investing in the Merge.

If you have any questions you’d like answered, reply to this email and we’ll pick a few to include in tomorrow’s edition!

INTRODUCING STARBUCKS ODYSSEY

Starbucks just made a big announcement. They’re partnering with Polygon to put their loyalty program on the blockchain.

That’s right. The Creators of the Pumpkin Spice Frappuccino are going Web3.

It’s called Starbucks Odyssey. Here’s what you need to know:

• It combines the already existing rewards loyalty program with a new web app

• Customers can earn “journey stamps” (aka NFTs) by playing games in the app, or buying them directly from the marketplace

• The NFTs come with experiences you can participate in, like virtual espresso martini classes, coffee bean farm tours in Costa Rica, etc

This is something to monitor because Starbucks’ loyalty program is massive. It has ~27M active members (more than Mcdonald’s and Chipotle) and ~53% of all spending in stores comes from Starbucks Rewards.

On top of that, using the platform is designed to be as easy as possible. Customers use their existing credentials to log in. No crypto is needed. No crypto wallets. No gas fees. Nothing. Zip. Nada.

Customers won’t even know they’re Web3 users.

The Milk Road’s Take: We’re no mathematicians but… a huge existing loyalty program + easy onboarding = (potentially) millions of new web3 users?

As always though, the devil is in the details. And there are a lot of details that have yet to be announced like the price of NFTs, what the final perks will be, etc.

We’ll definitely be watching this one closely. It could be big and open up a bunch of opportunities for other loyalty programs to go on-chain too. Southwest Airlines, I’m looking at you.

TODAY’S EDITION IS BROUGHT TO YOU BY PUBLIC REC

Confession: I haven’t worn work pants since 2020.

You see – I’ve been questioning a lot of things over the years.

The health of our country. The effectiveness of treadmill desks. And most importantly, if I should ever wear work pants again.

But then I got myself a pair of Public Rec pants – they’re work pants that feel like sweatpants. And man do I gotta say, I’m never going back to regular pants again.

It doesn’t matter if you’re headed back into the office, chilling at home, or even enjoying a night out, Public Rec is the perfect pair of pants for any occasion.

Wanna look good & feel comfortable? Get your pair here!

BITE-SIZED TREATS

Fidelity is considering offering crypto trading to their brokerage customers. In total, Fidelity has ~35m individual brokerage accounts.

Abra, a crypto management firm, is launching the first operational U.S charted bank, Abra Bank. Abracadabra! Say hello to crypto’s first regulated bank.

The Doodles NFT project just raised $54m. Investors include 776, FTX Ventures, and 10T Holdings.

CME Group, the largest derivatives exchange in the world, is launching options on ETH futures trading. CME is ready for The Merge, are you?

MEME OF THE DAY

That’s a wrap for today, see ya tomorrow!

If you want more, be sure to follow our Twitter (@MilkRoadDaily)

VITALIK PIC OF THE DAY

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.