What to Know About The Ethereum Merge
The price of Ethereum’s native cryptocurrency, Ether, has seen a sharp increase in price over the past few months in anticipation of Ethereum becoming a proof of stake blockchain. The price has risen to a local high of over $1,800 (Source: World Coin Stats). However, there are a lot of misconceptions surrounding Ethereum becoming a proof of source blockchain. This article will clarify some of the details surrounding this and offer some insight into why this might not be the saving grace that many expect it to be.
What is The Merge?
The Merge is the name given to the upcoming merging of the current proof of work Ethereum blockchain with the proof of stake Beacon Chain on Ethereum. It’s essentially a hot swap of the validation process on Ethereum.
Proof of stake has a lot of advantages over proof of stake, along with some disadvantages, which we will cover in the section. The important thing to remember is that proof of stake probably is not going to solve all the problems with Ethereum, at least not immediately.
When Will The Merge Happen?
The Merge will happen in Q3 or Q4 of 2022. The current expected date is September 19th, 2022. Ethereum has had a lot of delays with The Merge, so do not be surprised if this date is pushed back a little. It could also happen even sooner if testing goes well. Just don’t expect it considering The Merge has been delayed for years.
What Will Happen After The Merge
Here is what will happen after The Merge.
Basically, Ethereum will switch to proof of stake. This means that validation will be done by stakeholders on the Ethereum blockchain. They validate transactions in order to receive a cut of the transaction fees. If they do not properly validate the transactions, then they lose their staked Ethereum.
It’s a decent enough system and most of the major blockchains use a proof of stake validation model because it scales much better than proof of work. The thing is that switching to proof of stake will not increase the network capacity, at least not yet, which means that gas fees and transaction speed will not increase. Network capacity likely will increase eventually, but it will not increase the day of The Merge.
Will Ethereum Shutdown During The Merge?
No, Ethereum will not shutdown during The Merge. It will be a seamless transition to proof of stake. Ethereum users will likely not see much of a difference during the transition. This is one of the reasons that The Merge has been delayed for so many years, so this should go smoothly.
Why is Ethereum Switching to Proof of Stake?
Ethereum is switching to proof of stake for a few reasons. One of them is that proof of stake is far more environmentally friendly than proof of stake. There are not any computers running complicated math problems to validate transactions like in a proof of work system, which uses a lot of electricity.
Another reason is that proof of stake can scale a lot better than proof of work. Again, this scaling will not happen immediately, but it will almost certainly happen in the future. We will put it this way – Ethereum is hard capped at about 15 transactions per second. A proof of stake blockchain can handle nearly a hundred thousand transactions per second.
To put it simply, Ethereum needs to switch to proof of stake if it ever wants to scale to become more usable. Transaction fees can exceed hundreds of dollars at peak times, so it’s certainly not a viable option for a global payment network, financial hub, or whatever other global plan Ethereum has.
What Happens if The Merge Goes Wrong?
It’s not a surefire thing that The Merge will be an entirely smooth operation. It’s a complicated process where a lot could go wrong. Now, if things do go wrong, then the consequences could be very bad.
The whole blockchain might collapse or there might be a loss of data. It could be catastrophic. As you could imagine, the price of Ethereum would completely collapse and the blockchain would likely cease to exist.
The good news is that the chances of anything going majorly wrong are pretty rare. It’s not something to really worry about, but it could happen. This is why it’s always a good idea to diversify your crypto holdings.
Common Misconceptions Surrounding The Merge
There are a lot of misconceptions surrounding The Merge. A lot of these misconceptions are spread by journalists and others spreading false information about what they think a switch to proof of stake actually means. Some of these misconceptions include the following:
- “Ethereum gas fees will decrease after the merge.”
Sadly, gas fees will not lower after The Merge because switching to proof of stake will not increase network capacity. They will likely decrease at some point, but not immediately after the switch.
- “Ethereum’s transaction speed will increase.”
Not true. Transaction speed will not increase after The Merge because network capacity will not increase.
- “Staked Ether can be withdrawn after The Merge.”
Wrong, staked Ether cannot be withdrawn until after the Shanghai update.
Will The Price of Ether Increase After The Merge?
It’s difficult to predict whether or not the price of Ether will increase after The Merge. A lot of the price increase has already occurred in the lead up, so it would not surprise us if the price stayed relatively stagnant. Additionally, there are a lot of misconceptions surrounding gas fees and transaction speed after The Merge that will lead people to have some unrealistic expectations.
It would not surprise if there was a small sell off as the reality of The Merge hits people.
More likely, however, is that the price will increase once The Merge is successful. There is a lot of fear that the change could be a complete disaster for Ethereum.
Final Words
To summarize, The Merge is simply Ethereum switching from proof of work to proof of stake. Gas fees and transaction speed will mostly stay the same. This is still a very important step for Ethereum to take for it to become a more appealing blockchain to the general public. If things go smoothly, then this has the potential to be a great boon for Ethereum.
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