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What Is the Ethereum Merge? And What Does It Mean for Crypto Investors?
By Mallika Mitra MONEY RESEARCH COLLECTIVE
“If it goes smoothly, the merge will be an incredible technical feat.”
The crypto industry is getting excited for a big event known as “the Merge” — which proponents say could boost prices in the long run and significantly change the future of cryptocurrency.
The Merge is an upgrade to the Ethereum blockchain, the technology that fuels the second largest cryptocurrency and other technologies in the crypto ecosystem like non-fungible tokens (NFTs). It’s expected to take place in September.
There’s been a boom in crypto investing in recent years, with the value of the overall market more than doubling at one point last year as people piled their money into bitcoin, ether, dogecoin and other cryptocurrencies. Whether you are super into crypto and following every latest development in the space or you own a bit of crypto via a platform like Coinbase or Venmo, if you’ve heard about the upcoming so-called Merge you may be wondering what this actually means for you.
Here’s everything you need to know about the Ethereum Merge, including what the upgrade means for crypto prices, the environment and more.
What is the Ethereum Merge?
This Ethereum upgrade or “Merge,” as it’s being referred to, will change how new crypto transactions take place on the blockchain.
Currently the Ethereum blockchain, like the Bitcoin blockchain, runs on a proof-of-work model, which involves nodes — computers that are part of a large network — competing with one another to solve complicated math problems. The successful ones are then able to mine the next block of a transaction and create new coins.
The upgrade will transition Ethereum to the proof-of-stake model, which is a more energy-efficient and environmentally-friendly system. It entails nodes being selected via an algorithm that has a preference for nodes that hold more of a network’s currency.
In other words, their “stake” in the network is rewarded over the computer power that’s rewarded in the proof-of-work system.
When will the Ethereum Merge happen?
After many delays, the process is expected to begin on Sept 6 with the actual Merge happening around Sept. 15, according to post published Wednesday by the Ethereum Foundation.
Why is the Ethereum Merge happening?
Proponents say that the transition will allow the Ethereum network to reduce its energy consumption by around 99%.
The proof-of-work model, which is what the Bitcoin network uses, requires far more energy than the proof-of-stake model. The negative impact on the environment of crypto transactions has been top of mind for many cryptocurrency critics and advocates alike, and Ethereum’s shift to the less-energy-intensive proof-of-stake is viewed as a significant advance.
It will also set the groundwork for other aspect’s of the network’s roadmap, like making transactions more efficient.
What does the Ethereum Merge mean for you?
If you hold crypto assets, there likely isn’t any action you have to take. But this could offer a more environmentally-friendly option for those interested in crypto, and there could be some impact on crypto prices.
What does the Ethereum Merge mean for your ether holdings?
If you hold ether — the native cryptocurrency of the Ethereum blockchain and the second most popular cryptocurrency after bitcoin — you do not have to do anything, according to the Ethereum Foundation. But 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, the Ethereum Foundation wrote in its blog post.
“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 material change for you,” says Chris McCann, a partner at Race Capital.
If you are socially conscious investor who is feeling hesitant about the environmental impact of crypto, this could be good news for you.
“There is a lot at stake for this new event,” says Eliézer Ndinga, director of research at 21Shares, which provides cryptocurrency exchange-traded products. He described the Merge as “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.
What does the Ethereum Merge mean for ether’s price?
Crypto prices have been through the wringer this year.
But this Merge could shake up the price of ether, which has been outpacing bitcoin during much of cryptos’ recent recoveries.
“ETH has been outperforming bitcoin largely due to news about the upcoming merge,” Ben Weiss, CEO of cryptocurrency ATM company CoinFlip, tells Money via email. “If it goes smoothly, the merge will be an incredible technical feat.”
Crypto investors are well-acquainted with volatility, and they should be ready for more ups and downs.
“Some price volatility going into a key catalyst of such grave importance is reasonable,” Alex Tapscott, managing director of Ninepoint Partners’ digital asset group, told Money via email.
Fans of crypto — and the Ethereum network specifically — are hoping that the move will help boost ether’s price. A successful merge “should put a strong bid under the price of ETH and help it resume its upward trend,” Tapscott added.
Katie Talati, the director of research at investment firm Arca, told CoinDesk, “This is an event that a lot of people are undercounting, especially based on current price appreciation” of ether. “We’re gonna look back on this in a year from now and [realize] we were at the [market] bottom there.”
There is some perception that this change will unlock more growth potential in Ethereum, says Stéphane Ouellette, CEO and cofounder of FRNT Financial. But the long-term assessment of the value of the move will “likely be judged by the subsequent years of development on the blockchain and the applications and technologies which emerge,” he adds.
In other words, 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. (This is what financial advisors actually recommend — investing for the long haul, rather than speculating and trying to strike it rich quick.)
The Merge really sets the groundwork for other advancements hoping to be made on the Ethereum network in the future, McCann says. Long term, this could be a “positive catalyst” for ether, he adds.
What about bitcoin’s price?
While Ethereum is the star of the show when it comes to the Merge, it’s not necessarily the only crypto that could benefit.
“A successful merge will likely boost the price of all crypto assets,” especially ether and other projects associated with it, Tapscott says.
But bitcoin prices, he adds, could also rise as “investors in general gain more confidence in the asset class.”
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Mallika Mitra is a reporter at Money covering investing trends and cryptocurrency. Previously, she covered municipal finance at Bloomberg News and personal finance and retail at CNBC. She received her masteru2019s degree from the Craig Newmark Graduate School of Journalism at CUNY and bacheloru2019s degree from Kalamazoo College.