Ethereum’s big Merge will have a big impact on cryptocurrency and will impact more than just its blockchain. An event of this magnitude is not isolated, and it will cause changes and reactions to surrounding components. This Merge will have a ripple effect on many industries and daily practices.
The Ethereum blockchain, with its native coin Ether (ETH), is a pillar of the crypto asset industry which has become increasingly accepted with each passing year. Ethereum is the second most popular altcoin, with people searching Google for “Ethereum” an average of 2.1 million times a month. The Ethereum blockchain serves as a common choice for developers building decentralized applications (DApps). The Ethereum Merge, or simply the Merge, fundamentally changes the Ethereum blockchain in order to achieve greater scalability and security while requiring less energy usage. This move is likely to cause ripple effects for the broader crypto industry and other industries involved with crypto.
The Merge is part of a multi-year transition for the Ethereum blockchain and it essentially aims to scale the Ethereum blockchain. The official starting point of the network’s transition occurred late in 2020 with the proof-of-stake (PoS) version of Ethereum, although Ethereum’s main proof-of-work (PoW) blockchain also continued functioning. PoW versus PoS has been a long-standing debate in the crypto and blockchain sectors. Among the mix of arguments includes PoS blockchains requiring less energy than PoW networks.
After the Merge, Ethereum will be a PoS blockchain, with the PoW chain no longer exists. Post-Merge, Ethereum will rely on validators instead of miners to run the blockchain. Validators will need to lock up 32 ETH to support the blockchain’s function while earning rewards for doing so. Other methods also exist for contributing to the network via staking, such as services offered by crypto exchanges. The Merge is not the end of Ethereum’s broader transitional journey. This event merely marks just over the halfway point in Ethereum’s transition — 55% of the way to completion, according to Ethereum co-founder, Vitalik Buterin. Sharding is the next major goal for Ethereum, which aims to improve scalability via segmenting the blockchain into parallel portions.
The crypto and blockchain industry is a vastly interconnected space. Ethereum itself hosts almost 3,000 DApps on its blockchain. DApp users, Ethereum transactors and more could be affected by the Merge, but more so as part of the grander scheme of the movement. The Merge itself is a part of the larger Ethereum transition, which aims to boost security and scalability while consuming less energy. The Merge should significantly reduce the energy needed to power the Ethereum blockchain while making it operate slightly faster, but it appears that additional benefits may take longer to materialise as part of the bigger shift.
According to this Bitcode Method review, “Ethereum does not have a maximum coin supply; however, there is a limit on new ETH created per year in order to maintain some sort of structure and control”. Ethereum Improvement Proposal 1559 put in place an ETH burning mechanism based on transactions, although the Ethereum blockchain also produces new ETH. The Merge will decrease the amount of new Ethereum created annually, potentially affecting the asset’s price activity in the market.
The Merge has been widely anticipated and has created a large buzz around the crypto industry. There has been a long build-up towards this important event and it will have an effect on the broader crypto industry as it transitions to Ethereum 2.0