The Ethereum merge is getting closer. Investors and the Ethereum (ETH) community are closely following what is happening in the market and how this could affect the whole crypto space. But what is the Ethereum merge all about?
In this guide, we are going to tell you all you should know about the Ethereum merge, also known as ETH 2.0. We will cover the main aspects of the Ethereum merge and how you should get ready for it.
What is Ethereum (ETH)?
If you are here it’s because you for sure know what Ethereum is. But if you don’t know, let us get into the details of this digital asset.
Ethereum is the second-largest cryptocurrency and the most popular coin after Bitcoin (BTC). The virtual currency was released in 2016 and has been operating in the market since then. Ethereum was one of the first virtual currencies that allowed developers to create smart contracts and add new functionalities to the network.
Hence, Ethereum became a very useful digital currency and blockchain network that offered unique solutions that were never seen before in the cryptocurrency market. Thanks to smart contracts, we have seen the creation of the Decentralized Finance (DeFi) market, the expansion of non-fungible tokens (NFTs), and the opportunity that Play-to-Earn (P2E) games offered to people from all over the world to earn while playing.
Let’s also not forget that thanks to Ethereum, it was possible for thousands of projects from all over the world to release their tokens on top of Ethereum. We have seen Initial Coin Offerings (ICOs) bring new projects to the market and help the whole crypto market move forward.
Now, this blockchain network is searching for new ways to become better and more reliable. Due to some issues that this network has been facing, developers have been searching for possible solutions. One of these solutions was to update the network and transform it from a Proof-of-Work (PoW) consensus algorithm to a Proof-of-Stake (PoS) blockchain network.
We will get into the details of what Ethereum can offer in the next few sections.
What is the Ethereum Merge?
The Ethereum merge is a change in the consensus algorithm used on the Ethereum blockchain network. The goal is to change from a Proof of Work to a Proof of Stake and offer better solutions and services to users, especially when it comes to network reliability.
Over the course of the years, we have seen several new blockchain networks being released to the market offering faster and cheaper transactions than on the Ethereum network. However, there were always trade-offs in terms of decentralization, security, and scalability.
The Ethereum community has been working for several years with the goal of offering more reliable services and solutions. Thanks to this community consensus, nowadays, Ethereum is getting closer to offering faster and cheaper transactions to users.
This Ethereum Merge means that the current Ethereum mainnet is expected to merge with the Beacon Chain Proof of Stake system. After the merge, the Ethereum network that relies on miners will cease to exist and it will transition to a Proof of Stake blockchain network.
It is also worth taking into consideration that the official site of the merge informs that this transition will set the stage for future scaling upgrades that could include sharding or other solutions. Hence, this network upgrade for the Ethereum network is definitely going to have a large impact on the market.
This is indeed the most significant upgrade in the history of Ethereum. Before this will take place, developers will test the upgrades and ensure a safe transition to proof-of-stake. That includes searching for bugs and creating bounties to address possible issues.
Proof of Work (PoW) vs Proof of Stake (PoS)
Let’s get into the details of what it means to transition from a Proof of Work to a Proof of Stake blockchain network. Ethereum now reaches consensus with a Proof of Work approach. That means that there are miners processing network transactions and adding them to blocks.
Proof of Work networks requires miners to buy devices such as GPUs or ASIC in order to protect the network and receive rewards for finding blocks. The larger the number of miners located around the world, the more decentralized the network becomes and the better it works.
With the funds received, miners then had to pay the cost of operating and running their mining operations and paying energy bills. Mining is energy intensive and it requires miners to rely on cheap energy sources to become more profitable.
With a Proof of Stake consensus algorithm, rather than relying on miners, it is possible for stakers to participate in the consensus process. That means that those users that stake their ETH would be able to be rewarded with digital currencies for their work.
A Proof of Stake blockchain network is not only less energy intensive (indeed, it is very efficient), but it will also make it possible for Ethereum transactions to be processed faster and for a lower fee. Additionally, rewards will drop drastically on the Ethereum network and the number of ETH in the market is expected to start shrinking in the future.
With the growth of NFTs, DeFi, and ICOs, it was necessary for Ethereum to transition from a PoW to a PoS blockchain network. Transactions became very slow and fees skyrocketed, becoming even more expensive than on the Bitcoin network. With a Proof of Stake consensus algorithm, things should be easier for users.
When Will the Ethereum Merge Take Place (ETH 2.0)?
The date for the Ethereum merge has been moved many times in the past. Indeed, the goal was to release this update much time before. However, this did not happen and developers proposed new dates. This time, the official data has been finally released.
The Ethereum Merge is expected to take place as soon as September 15, 2022. This will be the moment in which the activation of the Proof of Stake network will take place.
Investors should pay close attention to this date as there could be some issues with the final merge and transition to a Proof of Stake consensus algorithm. Therefore, despite the fact that it has already been officially announced, we should wait until it finally happens.
It will be very important for people to read what cryptocurrency exchanges are doing. Some of them might support a possible hard fork while others not. We will discuss a possible hard fork in the next section.
Could Ethereum Hard Fork After the Merge?
Yes, the Ethereum network could hard fork after the merge. A hard fork is a situation in which the network cannot reach a majority consensus (over 90%) and the community splits into two. This community split can also be reflected in the network. Some miners and node runners could still support Ethereum Proof of Work and reject the move towards the new ETH 2.0.
If that happens, then we could have two blockchain networks running at the same time: a Proof of Work Ethereum and a Proof of Stake Ethereum. This would not only create a problem for investors but also to holders. What would happen with all the coins that were created on top of these networks? They will also be duplicated.
When a hard fork takes place, the community will ultimately decide what network will survive. However, in some other cases, there might be a situation in which the coin continues to operate with a smaller number of users and a lower price.
In the past, there have been many hard forks in the cryptocurrency market. Indeed, Ethereum, for example, experienced a hard fork in 2016 that ended up with Ethereum (ETH) and Ethereum Classic (ETC). At the same time, Bitcoin hard forked in 2017 when Bitcoin Cash (BCH) was created due to a different approach to scaling.
Vitalik Buterin, one of the co-founders of Ethereum has already informed that those that want to support a PoW blockchain network can move to Ethereum Classic rather than forking the ETH network into PoW and PoS. We cannot predict what will happen on the date of the merge, but we should be prepared.
Ethereum Price Post Merge
Another thing that investors have been wondering about is related to Ethereum’s price. Will the virtual currency skyrocket in the future? Will the new lower issuance of ETH push the price of Ethereum higher and surpass Bitcoin (BTC)? These are some of the questions related to Ethereum and its price post Merge.
Over the last few days, we have seen the price of Ethereum move higher. Indeed, the coin was able to surpass $2,000 a few hours ago, meaning that the coin grew by almost 19% in the last 7 days alone. This is over 10 percentage points higher than Bitcoin which expanded by 7.6% during the same period of time.
Some experts believe that Ethereum could surge to $10,000 and even $20,000 in the next bull run flipping BTC in the process. This would happen if ETH repeats a similar bull cycle from 2017 with a blow-off top.
ETH predictions next 12 months:
In general, ETH repeats a similar bull cycle from 2017 w/ a blow-off top b/t $10,000-$20,000 flipping BTC in the process.
— Token State (TokΞnizΞ ThΞ World) The Merge 🐬🦇🔈 (@tokenstate) August 13, 2022
There are many possibilities for Ethereum to continue growing in the future, but it will also depend on the general direction of the market. Bitcoin continues to be the largest cryptocurrency and the one that guides the whole industry.
The Ethereum Merge is getting closer and it is already offering new opportunities for users. It is clear that there will be great possibilities for investors to get access to a faster and more reliable blockchain network.
Despite that, there are some things that users should be aware of. For example, if there is a hard fork event, this could create some confusion among investors. Therefore, it is always important to check what wallets and crypto exchanges say about a possible fork and the creation of a new token.
That being said, exciting times are ahead for Ethereum investors and the whole crypto community. This could represent a new opportunity for projects and developers to release new and exciting solutions on top of Ethereum without having to be worried about scaling issues.