Ethereum Merge: What Investors Should Know

Why is this important?

While Ethereum was the first of its kind, it has many competitors vying for its market capitalization. Understanding the implications of the Ethereum Merge may give investors a strategic advantage in predicting Ethereum’s growth or demise.?Many competing smart contract blockchains exist, and many have technologies comparable to Ethereum’s. While Ethereum paved the way for these other blockchains, ?they were able to operate in a style that built upon Ethereum’s core technologies.?Yet, Ethereum is still the largest and the most trusted blockchain to run smart contracts on. This article aims to explore how the Merge may enhance or detract from Ethereum’s value, and how this will affect the entire crypto ecosystem.?

What is the Ethereum Merge?

The Ethereum Merge is an upgrade to the current technologies that run the Ethereum blockchain. It’s called “The Merge” because it represents the merger of the current Ethereum with the “Beacon Chain”, an auxiliary network currently run by the newer proof-of-stake technology stack for testing purposes.?It’s supposed to merge in August 2022, but will likely be pushed back, as it has been pushed back several times already.?Contrary to public belief, Ethereum’s high gas fees will not be slashed until shard chains are introduced in a future upgrade.

What Technological Upgrades?

The new “Ethereum 2.0” will now run on a proof-of-stake (PoS) network instead of the incumbent proof-of-work (PoW) model.?This is the largest technological change that The Merge adopts.?Bitcoin and Ethereum currently run-on proof-of-work models, requiring intensive computations to be performed on servers mining for financial rewards.?PoW uses vast amounts of energy and computing power to keep the network secure.?By moving to a PoS network, people “stake” their Ethereum to come to an agreement on what the correct block is.?It protects against malicious attackers because people hosting nodes stake their own Ethereum, losing some of this stake if they falsely propose a new block with inaccurate information.?PoS should be faster than PoW and use less electricity. It’s reasonable to assume that Ethereum will accomplish these feats, as other blockchains have done so already.?

What should Investors look out for?

Ethereum investors should be scrupulously looking to see what projects, developers, and communities are shying away from Ethereum and looking to other blockchains. Blockchains that compete with Ethereum have become a popular choice for projects who can’t afford the high gas fees that Ethereum incurs. The Merge may not yield substantially lower gas fees, but it is a step towards Ethereum becoming a more sustainable and scalable blockchain.?

With its higher energy efficiency, it’s possible that The Merge will reduce the risk of regulatory crackdown and foster in a new generation of projects to the Ethereum community who have been averse to being run on a blockchain that expends so much energy, burning fossil fuels in the process.?Many projects have chosen to avoid the Ethereum blockchain citing environmental reasons. These claims are possibly a guise to obfuscate a decision to operate on a weaker, cheaper, and less secure network, but many companies find it in their best interest to work with an energy efficient blockchain to keep environmentally friendly customers happy.

What could go wrong?

The Merge has been pushed back several times in the past year.?There is fear that if Ethereum cannot solve these problems soon, the developer community may lose faith in Ethereum’s ability to grow and evolve over time, and may opt for cheaper and less busy blockchains, which would drive down the demand for Ethereum as an asset. While Ethereum is the dominant smart contract blockchain, only the future will determine how large of a market percentage they control.?As a developer, it’s not difficult to uproot your code from the Ethereum blockchain and port it to another EVM compatible chain, given that your project is not hosted on Ethereum to begin with.

There are security concerns about moving to proof-of-stake too. Proof-of-work is trusted, secure, and unforeseen problems may arise with proof-of-stake. On May 25th, the Beacon Chain experienced a seven-block “reorganization”, a security risking event where a bug or malicious attack causes duplicate versions of the blockchain to co-exist. While Vitalk Buterin is striving to correct these problems, it’s still a possible weakness of the upcoming merger.?

Conclusion

There are many unknowns to investing in crypto. The best way to lose money is to blindly follow hype without any regard for value. Why are people buying Ethereum? What value does it have? Why are people branching off to other chains? What are developers clamoring towards? The Ethereum Merge will demonstrate the Ethereum Foundation’s ability to iterate and compete with new blockchains, or it may further the demise of the original smart contract blockchain.?

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