Start by shredding the sharp cheddar cheese. Freshly shredded cheese melts better than pre-shredded varieties, ensuring a smooth texture.
In a medium saucepan, pour in the beer and heat over medium heat until it starts to simmer. Be careful not to boil the beer, as it may lose its flavor.
Add the softened cream cheese to the simmering beer. Whisk until the cream cheese is fully melted and the mixture is smooth.
Gradually add the shredded cheddar cheese to the saucepan, whisking constantly. Ensure each addition melts completely before adding more. This helps to create a smooth and creamy texture.
Stir in the Dijon mustard, garlic powder, onion powder, paprika, cayenne pepper (if using), and a pinch of salt and pepper. Continue to whisk until all the ingredients are well combined.
If the beer cheese is too thick, add a little more beer, one tablespoon at a time, until you reach your desired consistency. For a thicker dip, let it cook a bit longer to reduce the liquid.
Pour the beer cheese into a serving bowl. Garnish with chopped chives or green onions if desired. Serve warm with your favorite dippers such as pretzels, bread, or vegetables.