The Ethereum Merge, a long-awaited shift in the technological underpinnings of the world’s second-most valuable cryptocurrency, is scheduled to be complete sometime between September 10 and September 20. And, because Ethereum is so central to the crypto space, the change could have implications for investors across the sector.
Ethereum’s technology supports many other cryptocurrencies, and it is also commonly used to carry out decentralised cryptocurrency financial transactions. While the technical details behind the Merge are complex, the upshot is that Ethereum’s developers are preparing to change the way that users of its decentralised economic system validate new transactions. The merge is intended to move Ethereum away from the energy-intensive process known as mining, and it could reduce the network’s power consumption by more than 99.95%.
Fundamentally, the Merge is a software transition from using proof-of-work to proof-of-stake to validate transactions. The blockchain successfully tested the transition—or Merge, as it is called—in July and the move to proof-of-stake is now expected in the middle of September.
Ethereum uses Proof-of-work consensus mechanism that requires user computers to solve increasingly difficult computations before being allowed to add a new block. This method, known as mining, is used by many cryptocurrencies including Bitcoin. Mining is secure, but it’s also energy-intensive. Now, Proof-of-stake is an alternative that consumes less energy. Instead of devoting electricity, which fuels computing power, users who want to be part of the verification process will put their personal cryptocurrency on the line in a process called staking. These users, called validators, are randomly selected to verify new information to be added to a block. They receive cryptocurrency if they confirm accurate information. If they act dishonestly, they stand to lose their stake.
That done, investors are wondering - this is good but what about my investments? If you hold ether — the native cryptocurrency of the Ethereum blockchain, you really do not have to do anything. Just be a bit cautious and watch out for scams. If an application, crypto exchange or crypto wallet sends you instructions or recommendations, be sure to verify the notices are actually coming from those platforms. If you are a user and you just want to send some Eth from one person to another or use a DeFi application, it really doesn’t have any kind of change for you.
The Merge is also a huge step forward, especially for the retail investors more conscious about global warming and climate change; who want to invest in more environmentally-friendly assets.
But this Merge could shake up the price of ether, which has been outpacing bitcoin during much of cryptos; recent recoveries. Crypto investors are well-acquainted with volatility, and they should be ready for more ups and downs as some price volatility is reasonable. Investors are hoping the move will help boost ether’s price and successful merge should put a strong bid under the price of ETH and help it resume its upward trend, as this is an event that a lot of people are undercounting, especially based on current price appreciation of ether.
While the Merge is likely a positive thing for Ethereum and its believers overall, investors may have to stick around instead of benefiting from a price jump right away.
More importantly, the Merge really sets the groundwork for other advancements hoping to be made on the Ethereum network in the future, and in the long-term, this could prove to be a positive catalyst for ether.