Ethereum Merge: What is ‘biggest event in crypto history’ and why is it so controversial? - INDEPENDENT
It is being billed as the biggest event in crypto’s history. On Thursday, the world’s second-largest cryptocurrency will complete a seismic upheaval of its underlying technology, switching to a new system that will cut its electricity consumption by orders of magnitude.
In doing so, the developers of Ethereum are taking the most radical action ever seen in the crypto space to address environmental concerns surrounding the technology that have arisen in recent years. Anticipation surrounding the transition, known as ‘the Merge’ has seen the price of Ethereum’s token ETH more than double over the last two months, outstripping its more famous rival bitcoin four-fold.
But despite the hype, not everybody is happy. Here’s everything you need to know about what’s set to take place next month.
Ethereum Merge: What is it and when will it happen?
“Following years of hard work, Ethereum’s proof-of-stake upgrade is finally here,” the Ethereum Foundation announced in August, setting a date for 6 September, 202, for the first part of the upgrade. At some point between 10-20 September, most likely 16 September, the second and final stage will be completed.
The switch to proof-of-stake (PoS) will see Ethereum’s entire underlying network ditch the energy guzzling proof-of-work (PoW) system, which involves using powerful computers to solve complex puzzles in order to maintain the security of the network, mine new units of the cryptocurrency and verify transactions.
The new system instead does all this by using existing stakeholders as the consensus mechanism, with some estimates suggesting that the switch to PoS will reduce Ethereum’s electricity consumption by a factor of 1,000.
Ethereum Merge: Why the controversy?
When the Merge occurs, the network will essentially split in two, creating a PoS chain and a PoW chain.
It is not the first time a leading cryptocurrency has experienced a major fork – bitcoin, which still uses PoW, has been forked numerous times to create spin-offs like Bitcoin Cash and Bitcoin Gold – and each time there is the risk that users do not adopt the new version.
The decentralised nature of cryptocurrencies mean there is no authority to enforce which chain is used, though there will need to be consensus among Ethereum-based projects and NFT marketplaces like OpenSea, which will suddenly have duplicates of non-fungible tokens hosted on each of the Ethereum blockchains. Deciding which is the “real” NFT may ultimately be up to the market.
Some crypto advocates, who value decentralisation over environmental credentials, argue that PoS moves away from the core tenets of cryptocurrency by creating greater centralisation and control by large stakeholders.
The other big resistance comes from those currently mining Ethereum, who have invested huge amounts of money into the equipment needed to mine it. All of their computers used to generate their income will be completely unnecessary with a PoS system.
Ethereum Merge: Will price continue to rise?
This is currently the $200 billion question. Ethereum’s market cap has doubled since hitting a yearly low in June of just above $100 billion.
It still remains way off its peak of more than $550 billion, which it hit during last year’s crypto bull run, but it has managed to significantly outperform the rest of the market in the build up to the Merge.
“While attempting to second guess what will actually happen next is of course the preserve of the trader, the Merge continues to captivate a growing audience, and has coincided with a rally in bitcoin and traditional stocks,” market analysts at the crypto exchange Bitfinex wrote in a recent note.
“We are living through a once-in-a-lifetime moment and are watching technical evolution happen before our eyes. We look forward to welcoming a new Ethereum, an Ethereum that consumes less energy and brings long-term scalability, and security to the community.”
If the transition is smooth and consensus is reached early, then confidence will be high for the latest price rally to continue.
Ethereum Merge: Could crypto ‘flip’ bitcoin?
The excitement surrounding the Merge has once again led to speculation that Ethereum could finally fulfill the hypothetical “flippening”, whereby its market cap overtakes bitcoin to become the world’s most dominant cryptocurrency.
Unlike bitcoin, which serves only as a store of value or medium of exchange, Ethereum’s blockchain is vastly more versatile. Its technological advantages have led some of the earliest proponents of cryptocurrency to predict that Ethereum will one day overtake bitcoin.
Roger Ver who has been a prominent figure in the space since 2011, told The Independent in 2018: “I see it happening.”
Others believe bitcoin’s dominance will never be truly threatened, as its fundamentals remain sound and its reputation is unrivalled.
Whether it does or not, some industry commentators say it provides a welcome relief from the “crypto winter” that is currently underway.
“The crypto industry has needed a new narrative, new hope, for some time now and I believe Ethereum delivered that with the Merge,” Max Kordek, a blockchain entrepreneur and CEO of the platform Lisk, told The Independent.
“This merge is causing a higher upwards trajectory than Bitcoin and it tells us that there is still a lot of support and belief in the industry. The crypto market has been down for a long time, however, people are now willing to take some risks again.”