Will Crypto Survive the Ethereum Merge?
“The merge” is making huge headlines in the world of cryptocurrency. For the most part, the news is good. A few reports, however, point out some things that should be a concern to investors and others involved with the Ethereum blockchain.
As we draw near to September 19, which is the latest target date for the merge, here is some information that could be valuable for those who are wondering what the merge is, why it may cause problems, or how you might capitalize on it.
The end of proof-of-work for Ethereum
As explained on Ethereum’s website, the merge refers to the merging of the Ethereum Mainnet system with the Beacon Chain system. When the merge is complete, it will eliminate the need for the proof-of-work that is used on the Ethereum network. Instead, a proof-of-stake consensus layer will be used to verify transactions on the Ethereum blockchain.
Proof-of-work — a system employed in the world of cryptocurrency for validating transactions and mining new tokens — has drawn global criticism for the energy that it requires. A recent report in Business Insider revealed that the annual energy consumption of Bitcoin alone is 132.48 terawatt-hours, which surpasses the amount of energy used by the entire country of Norway. Policy recommendations aimed at lowering the energy impact of crypto mining are expected to be issued by the Biden administration by the end of August 2022.
Proof-of-stake offers an alternative to proof-of-work, allowing transactions to be validated through a process that focuses on the staking rather than the mining of coins. Ethereum says the shift to proof-of-stake that will be brought about by the merge represents a “truly exciting step in realizing the Ethereum vision — more scalability, security, and sustainability.” It also reports that the merge will reduce its energy consumption by approximately 99.95 percent.
What will it accomplish?
“The biggest benefit of the merge is the creation of a more eco-friendly Ethereum network,” says Jacky Goh, CEO and co-founder of Rewards Bunny, a cashback platform that rewards shoppers with crypto, adding significant value to the entire crypto industry. “In addition, the merge will result in Ethereum being positioned to upgrade its scalability. Decreasing the congestion on its network as well as decreasing its energy consumption are two primary concerns for Ethereum. The merge will mean positive change in both of those areas.”
To dispel confusion about the merge, Ethereum has provided a list of misconceptions on its website, including the misconception that the merge will reduce gas fees on the Ethereum blockchain. It explains that the merge is “a change in consensus mechanism, not an expansion of network capacity,” meaning it will not result in a decrease in gas fees. Another misconception addressed is that the merge will result in downtime for Ethereum users, saying that the merge is designed to take effect “with zero downtime.”
What could go wrong?
Ethereum has provided assurances that it utilized “extensive testing and bug bounties” to ensure that the merge will be a safe transition for all involved. However, there are concerns with the transition.
“The biggest concern being reported focuses on the miners involved with Ethereum,” Jacky says. “As the need for their services comes to an end, there is no guarantee that they will stay around until the last day. If they quit mining, maybe in an effort to sell off their equipment, the drop in proof-of-work capability could weaken security for Ethereum before the merge takes place.”
Scams are another concern. Ethereum has told its users that they should be “on high alert” for scams that leverage the merge in some way. “Do not send your ETH anywhere in an attempt to ‘upgrade to ETH2,’” it warns. “There is no ‘ETH2’ token, and there is nothing more you need to do for your funds to remain safe.”Finally, further delays could have a negative effect on the uptick in Ethereum value that the merge seems to be inspiring. The value of Ether, which is the main token on the Ethereum blockchain, saw a 15 percent gain in July, marking the biggest jump since March 2022. Fortune reports that one reason for the increase is an increasing number of crypto whales who have been drawn to Ether in anticipation of the merge. Every month that the merge is delayed gives other crypto platforms, like Solana or Avalanche, a chance to step in and provide the utility that Ethereum is promising.