Tonight marks one of the most significant events in cryptocurrency history; the long-awaited Ethereum merge. The merge has the potential to change how cryptocurrency blockchains operate in dramatic ways.
The merge could revolutionize Ethereum, making it both larger and significantly greener overnight. Or it could crash the network and plunge it into a lengthy quagmire of scrabbling and infighting from which it never recovers.
Given that Ethereum has a market cap of nearly $200 billion as I write this, the impact of the merge will be significant no matter what happens.
Since its inception, Ethereum has used a Proof of Work blockchain that is similar to the blockchain used for Bitcoin, the most prominent and well-known coin. Proof of work essentially uses computing power and massive amounts of electricity to secure the blockchain and lend value to cryptocurrency tokens.
The developers behind Ethereum–who work as a decentralized collective–have increasingly felt that Proof of Work isn’t sustainable. Proof of Work blockchains use massive amounts of electrical power and billions of dollars worth of equipment.
Especially with much of Europe facing massive natural gas shortages and electrical supply issues following the war in Ukraine, sucking down huge amounts of energy to run a digital token system feels increasingly wrong and untenable.
For that reason–as well as some more technical ones–Ethereum has long run a separate Ethereum 2 blockchain based on Proof of Stake instead of Proof of Work. Under this model, Ethereum transactions are verified by having people hold and “stake” the network’s Ether coin instead of having them use massive amounts of computing power.
Tonight–after many delays and false starts–Ethereum’s developers plan to merge the two blockchains together, moving the whole network to the less power-hungry Proof of Stake model
Whatever happens, the merge is a huge deal for the world of cryptocurrency. It could validate the importance of blockchains, destroy billions of dollars of value overnight, or achieve some middling outcome between those two extremes.
Either way, it’s happening. Get out your popcorn, keep an eye on your coins, and let’s see what goes down tonight.
This article is for informational purposes only and should not be construed as investment, tax or legal advice. Always consult a professional advisor for advice specific to your situation before making any major financial decisions, and never invest more than you can afford to lose. Thomas Smith holds a diversified investment portfolio that includes a variety of securities and cryptocurrencies.