The Ethereum Merge: 4 Things To Know Ahead of the Big Crypto Event

MORGANTOWN, WV - 31 DECEMBER 2017: Ethereum or ether coin lying on top of similar golden coins to illustrate cybercurrencies.
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The Merge, the much-anticipated Ethereum upgrade set to take place on Sept. 15, is what many experts call “one of the most significant moments in the history of crypto.” With all of the buzz surrounding it, the delays and the ramifications the upgrade will engender for investors, many rumors are flying around the event.

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Simply put, The Merge is the end of proof-of-work for Ethereum, and the full transition to proof-of-stake, according to the Ethereum Foundation. 

“The Merge represents the joining of the existing execution layer of Ethereum (the Mainnet we use today) with its new proof-of-stake consensus layer, the Beacon Chain,” the Ethereum Foundation said. “It eliminates the need for energy-intensive mining and instead secures the network using staked ETH. A truly exciting step in realizing the Ethereum vision – more scalability, security and sustainability.”  

Scalability: More Upgrades To Come

Patrick Chiu, founder and CEO of global digital asset financial services group Mamoru, told GOBankingRates that The Merge is a critical step in eventually making Ethereum far more scalable. 

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“Indeed, once it is completed next month, there will be several future upgrades that will speed up transactions and lower fees,” Chiu said. “Think of The Merge, then, as the first key step in this process of scaling the network. We understand how the investment thesis surrounding Ethereum’s switch to proof-of-stake can be attractive to new investors, and we will be keeping a close eye on it.” 

The Flippening: Will ETH Surpass Bitcoin?

A potential enormous effect of The Merge, and a rumor circulating in both the cryptoverse and non-crypto circles alike, is the so-called “flippening” — the eventuality that ETH surpasses Bitcoin as the biggest cryptocurrency, de facto dethroning the ruler of cryptos from its No. 1 market cap spot. 

“Bitcoin is certainly the OG, and I don’t want to knock it, but there will be some monumental shifts in the coming years that will change the existing assumptions about our industry,” Brent Xu, CEO and co-founder of Web3 bond-market platform Umee, told GOBankingRates. 

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Noise around this has become louder as The Merge approaches; indeed, as of Aug. 19, ETH is up 9.6% in the past 30 days, while Bitcoin is down 8.4%, according to CoinGecko data. 

Charles Allen, CEO of BTCS Inc., a publicly traded company focused on blockchain infrastructure and technology, said Ethereum has had a strong summer, climbing more than 109%. In addition, Allen said Ethereum’s token supply will be significantly impacted because of The Merge, particularly Ethereum’s mining and staking rewards. 

“Analysts anticipate that switching away from proof-of-work will reduce Ethereum’s overall issuance by 4.2% annually,” Allen said. “Furthermore, one of the USA’s top banks, Citi, forecasted that this move would eventually make Ethereum’s supply become deflationary. The reduction in the ETH supply could feasibly increase the value of existing ETH in circulation and narrow the market cap gap with BTC.” 

Another factor that could affect “the flippening” is the greater scalability The Merge will trigger, which in turn will engender more investor utility and economic interest. 

Greg Hemmer, head of ecosystem at Ethereum-compatible smart contract platform Shardeum, told GOBankingRates that once The Merge is complete there will be additional upgrades to the network and broader ecosystem that will focus on lowering gas fees and increasing speeds. 

“I think that, as a whole, this will generate a tremendous amount of momentum that will bring more and more applications into the Ethereum ecosystem,” Hemmer said. “And, in turn, this will bring in more and more users. As a result, the utility and value are going to explode.

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“I don’t want to make any predictions as to whether Ethereum will surpass Bitcoin in terms of market capitalization, but I will say that we are only at the early stages of a huge amount of developer and economic activity gravitating to the Ethereum ecosystem.”

Sustainability: Minimizing Energy Use

The Merge also intends to be more sustainable, and the organization said it will reduce Ethereum’s energy consumption by 99.95%. 

Right now, Digiconomist estimates that under the proof-of-work, the annualized total Ethereum footprints are comparable to the power consumption of the Philippines and comparable to the carbon footprint of Sweden.

“This change would minimize energy consumption and will be implemented gradually according to the latest roadmap,” according to Digiconomist. 

Jonathan MacDonald, chief marketing officer of decentralized blockchain protocol Minima, told GOBankingRates that a single Ethereum transaction can consume as much power as an average U.S. household uses in more than a week. Bitcoin’s energy consumption is even worse. 

“Ethereum needs to move to proof-of-stake (PoS),” McDonald added, “so it doesn’t further exacerbate the environmental horrors of Bitcoin and increase the volume of transactions per second from around 30 per second today.” 

What Are the Risks?

Umee’s Xu explained that, while there are certainly risks involved in this transition, the developers have spent painstaking years planning for it. According to Xu, the biggest concern for the industry is not that The Merge will not work but rather that there might be regulatory overreach that could damage innovation going forward. 

“The recent sanctioning of crypto mixer Tornado Cash is an example of this — or at least it’s raised concern within our industry about privacy and the right to speech,” Xu said. “That said, overall, crypto and Ethereum have made huge strides despite recent setbacks. And I’m optimistic!”  

Other experts note that the transition is an enormous undertaking and, as there have been so many delays, there remains considerable skepticism that this time it will get over the line — although the signs are good with the various “testnets” having been given the all-clear.

Charlie Erith, CEO of ByteTree Asset Management, likens it to “changing a jet engine mid-flight, and (this) has been five years in the making.” 

“Yet this is just the beginning. It is a technology, after all. Vitalik Buterin, Ethereum’s cerebral creator, reckons that The Merge is only 55% of the transformation process. After The Merge come various other improvement stages, poetically termed the surge, the purge, the verge and the splurge. Without going into detail, these are all enhancements to scalability, utility and security.” 

He added that, while Ethereum has established itself as the premier smart contract blockchain and has a network that is the envy of all others, it has been relatively slow, horribly expensive and very energy consumptive. 

“The Merge is the first step in eliminating all these objections,” Erith said. “There is a risk, of course, that it all goes wrong, and the ETH community will be holding their breath in mid-September. But if it proceeds smoothly, it will make it a genuine contender to become the dominant currency of the internet.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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