The crypto industry is hyping up for a big event known as “the meltdown” – which proponents believe could drive prices up in the long run and dramatically change the future of cryptocurrency.
The merger is an upgrade to the Ethereum blockchain, the technology that powers the second-largest cryptocurrency and other crypto ecosystem technologies like non-fungible tokens (NFTs). It should take place in September.
There has been a boom in crypto investing in recent years, with the value of the overall market more than doubling at one point last year as people piled their cash into bitcoin, ether, dogecoin and other cryptocurrencies. Whether you’re super into crypto and follow all the latest developments in the space or own some crypto through a platform like Coinbase or Venmo, if you’ve heard of the upcoming so-called merger, you may be wondering what this actually means to you.
Here’s everything you need to know about the Ethereum merger, including what the upgrade means for crypto prices, the environment and more.
What is Ethereum Merge?
This Ethereum upgrade or “Merge” as it is called, will change the way new crypto transactions take place on the blockchain.
Currently, the Ethereum blockchain, like the Bitcoin blockchain, operates on a proof-of-work model, which involves nodes — computers that are part of a large network — competing with each other to solve complex mathematical problems. Successful ones can then mine the next block of a transaction and create new coins.
The upgrade will move Ethereum to the proof-of-stake model, which is a more energy efficient and environmentally friendly system. This implies that nodes are selected through an algorithm that has a preference for nodes that hold more of a network’s currency.
In other words, their “participation” in the network is rewarded relative to the computing power that is rewarded in the proof-of-work system.
When will the Ethereum merger take place?
After numerous delays, the process is set to begin on September 6, with the actual merger taking place around September 15, according to Publish published Wednesday by the Ethereum Foundation.
Why is the Ethereum merger happening?
Proponents claim that the transition will allow the Ethereum network to reduce its energy consumption about 99%.
The proof-of-work model, which is used by the Bitcoin network, requires significantly more energy than the proof-of-stake model. The negative impact on the crypto trading environment has been a major concern for many cryptocurrency critics and advocates, and Ethereum’s move to less energy-intensive proof-of-stake is seen as a significant step forward.
It will also lay the groundwork for other aspects of the network roadmap, like making transactions more efficient.
What does the Ethereum merger mean for you?
If you own crypto assets, you probably don’t need to take any action. But it could provide a more eco-friendly option for those interested in crypto, and it could impact crypto prices.
What does the Ethereum merger mean for your ether holdings?
If you hold ether — the native cryptocurrency of the Ethereum blockchain and the second most popular cryptocurrency after bitcoin — you don’t need to do anything, according to the Ethereum Foundation. But beware of scams. If an app, crypto exchange, or crypto wallet sends you instructions or recommendations, be sure to check that the reviews are actually coming from those platforms, the Ethereum Foundation wrote in its blog post.
“If you’re a user and just want to send Eth from person to person or use a DeFi app, that really doesn’t have any type of material change for you,” says Race Partner Chris McCann. Capital.
If you are a socially responsible investor who is hesitant about the environmental impact of crypto, this could be good news for you.
“There’s a lot at stake for this new event,” says Eliézer Ndinga, director of research at 21Shares, which provides cryptocurrency exchange-traded products. He described the merger as “a huge step forward, especially for more global warming and climate change conscious retail investors” who want to invest in more environmentally friendly assets.
What does the Ethereum merger mean for the price of ether?
Crypto prices have gone through the wringer this year. After an impressive few years that included record high prices last November, cryptocurrencies like bitcoin and ether have seen significant declines more recently alongside other financial assets, like stocks. Bitcoin is down about 55% year-to-date, as is Ether.
But this merger could shake up the price of ether, which has outpaced bitcoin in much of recent crypto recoveries.
“ETH has outperformed bitcoin in large part due to news about the upcoming merger,” Ben Weiss, CEO of cryptocurrency firm CoinFlip, told Money via email. “If all goes well, the merger will be an incredible technical feat.”
Crypto investors are familiar with volatility and should be prepared for more ups and downs.
“Some price volatility going into a key catalyst of such importance is reasonable,” Alex Tapscott, managing director of Ninepoint Partners’ digital asset group, told Money via email.
Fans of crypto – and the Ethereum network in particular – are hoping the move will help lift the price of ether. A successful merger “should place a strong bid under ETH price and help it resume its upward trend,” Tapscott added.
Katie Talati, director of research at investment firm Arca, said CoinDesk, “This is an event that many people underestimate, especially based on the current price appreciation” of ether. “We will come back to this in a year and [realize] we were at [market] down there.
There is some perception that this change will unlock more growth potential in Ethereum, says Stéphane Ouellette, CEO and co-founder of FRNT Financial. But the long-term assessment of the value of the move “will likely be judged by subsequent years of development on blockchain and emerging applications and technologies,” he adds.
In other words, while the merger is likely to be a positive thing for Ethereum and its proponents overall, investors may have to stick around instead of immediately benefiting from higher prices. (That’s what financial advisers actually recommend – investing for the long term, rather than speculating and trying to get rich quick.)
The merger really lays the groundwork for more hopeful advancements to be made on the Ethereum network in the future, McCann said. In the long term, this could be a “positive catalyst” for ether, he adds.
What about bitcoin price?
While Ethereum is the star of the show when it comes to the merger, it’s not necessarily the only crypto that could benefit.
“A successful merger will likely raise the price of all crypto assets,” especially ether and other associated ventures, Tapscott says.
But bitcoin prices, he adds, could also rise as “general investors gain confidence in the asset class.”
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