The crypto industry will be keeping a close eye on the long-awaited Ethereum “Merge” upgrade, which is expected to happen in September. If successful, the upgrade is expected to reduce the carbon footprint of the blockchain and reduce the supply of ether. and could potentially have a profound impact on the entire crypto ecosystem.
What is an Ethereum merger?
Merger is the Ethereum ETHUSD transition plan,
blockchain from proof-of-work to proof-of-stake, with the goal of reducing blockchain energy consumption and laying the foundation for it to become more productive in the future.
First, a few questions. Reason for the merger? To make the transition, the main Ethereum network or its main execution layer will be merged with the Beacon chain, the Proof-of-Stake consensus layer.
What is proof-of-work and proof-of-stake? Both are consensus mechanisms whose purpose is to to protect the blockchain and prevent fraud by intruders. As part of the proof-of-work mechanism, miners validate new transactions on the blockchain by solving complex mathematical puzzles. This usually requires significant power consumption, which leaves the crypto industry vulnerable to criticism. The Yale Environmental Review in 2019 equated the acquisition of bitcoin with “mining for diamonds.” Both bitcoins BTCUSD,
and Ethereum is currently adopting a proof-of-work mode.
Under Proof-of-Stake, blockchain transactions are verified by coin holders who stake or lock their cryptocurrencies using the blockchain. Since it does not require a lot of electricity, this mechanism has been introduced as a more environmentally friendly alternative to proof-of-work and is currently being used by many Ethereum competitors such as Binance Chain, Solana SOLUSD,
and Avalanche AVAXUSD,
Why is the merger important for Ethereum?
The upgrade is expected to make Ethereum much greener, reducing the energy consumption of the blockchain by around 99.95%, according to the Ethereum Foundation. According to Digiconomist, a single Ethereum transaction currently requires power equivalent to what the average US household consumes over 6.5 days. The total energy consumption of Ethereum is about 78.6 TWh per year, which is comparable to the energy consumption of Chile, and the carbon emissions of the blockchain are comparable to those of Hong Kong.
Meanwhile, the merger Ethereum new supply is expected to decrease by 90%, according to the Ethereum Foundation. Vitalik Buterin, the co-founder of Ethereum, said in July that once the merger is completed, Ethereum issuance will be controlled by an equation that depends on the amount of the Ethereum share, rather than five million per year.
Moreover, the merger could pave the way for Ethereum to become more scalable, laying the foundation for blockchain to become faster and cheaper in the future.
What does “merging” mean for the rest of the cryptocurrency?
Ethereum expected to be the first blockchain ever switch to proof-of-stake from proof-of-work. Thus, the whole crypto industry is watching to see if it can overcome serious technical challenges to successfully implement the merger.
Meanwhile, Ethereum is the largest blockchain for decentralized finance, or DeFi, with over $35 billion locked on it, according to Defi Llama. The smoothness of the merger implementation could affect the entire Ethereum ecosystem.
Some also expect the price of ether will rise in a “merger” even though the cryptocurrency has fallen 57% since the beginning of the year, according to data from CoinDesk. Analysts at research firm FSInsight expect Ether’s market cap to surpass Bitcoin’s in the next 12 months as new Ether supply shrinks and pressure from miners eases., according to a recent note. Ether has a market capitalization of $202 billion and Bitcoin around $411 billion, according to CoinMarketCap.
Read: Will the price of Ether drop after the September Merger?
When will it happen?
In July, Tim Beiko, who organizes the main developer meetings for Ethereum, predicted that the merger would be launched in the week of September 19th. However, the timing may change, Beiko said.
Ethereum’s Buterin tweeted on August 12 that the merger would most likely happen around September 15, although the exact date depends on the hashrate or total network power provided by the network.
On August 10, Ethereum held its final dress rehearsal, and its testbed network called “Goerli” successfully completed the merger.
How do traders prepare?
Traders have been busy positioning ahead of the merger, especially after Ethereum miner Chandler Guo proposed a “hard fork” of the Ethereum blockchain in late July. or splitting the chain into a duplicate version based on the Proof-of-Work consensus mechanism. Some miners have vowed to back Guo’s proposal as the merger would make mining obsolete. It is not yet clear how popular the new network could become.
However, if a hard fork occurs, all Ether holders are expected to receive an equal amount of new tokens on the forked chain, as is usually the case during forks. As a result, some traders borrowed Ether to make a profit.
Overall, institutional interests surged ahead of the merger, with the number of addresses holding over 100 ether, 1,000 ether, and over 10,000 ether skyrocketing, according to Blockchain data.
Listen to Mike Novogratz at the Best New Ideas in Money Festival, taking place September 21 and 22 in New York City. The CEO of Galaxy Digital has ideas on how to survive the crypto winter.