The Ethereum Merge: What You Should Know

The Ethereum Merge is a highly anticipated event of 2022 in the crypto community. The event will mark the completion of the second phase of the Ethereum 2.0 upgrade. The Ethereum Mainnet will merge with the Beacon Chain, transitioning it from a Proof-of-work to a Proof-of-stake blockchain.

The Beacon Chain

Launched on December 1st, 2020, the Beacon Chain is a proof of stake blockchain running parallel to the Ethereum blockchain. The chain is a consensus layer that handles a network of stakers. Since its creation, the Beacon chain has been put under various tests to test its reliability and capabilities.

The Ethereum Merge will see the Beacon Chain’s proof of stake consensus replace Ethereum’s proof of stake consensus. The Beacon Chain will become the prime blockchain on the Ethereum network.

Impact of the Ethereum Merge

There are many reasons to be excited about the Ethereum Merge. The event is not just for crypto holders as its success will see Ethereum reduce its carbon footprint significantly.

The crypto space has for the longest time been under great criticism due to its negative impact on the environment, especially blockchains that use proof of work consensus mechanism.

Some of the benefits of the Ethereum Merge include Ethereum’s transition to proof of stake, better network security, and a possible increased user base.

Benefits of the Merge

• Transition to Proof of Stake consensus mechanism Ethereum like Bitcoin has been using a Proof of Work consensus mechanism to verify transactions, add new blocks, and network security. The problem with proof of work is its high energy consumption rate. Its high energy consumption rate makes it harmful to the environment.

With proof of stake, Ethereum replaces miners with validators. The network no longer requires high energy-consuming hardware for security. According to research done in 2021 by researchers at the Ethereum Foundation, Ethereum’s transition to proof of stake consensus can cut its energy use by at least 99.95%.

• Better network security The proof of stake consensus mechanism eliminates the need for expensive network security hardware. The consensus mechanism introduces staking, where any crypto holder can participate in securing a blockchain network.

Proof of stake makes it easy for anyone to help secure the Ethereum network. The more people participate in security the more robust the chain becomes. More people securing a network increase its decentralization. Proof-of-stake, therefore, also reduces centralization risks.

A plus for Proof of Stake is that it can also enable a network to become more censorship-resistant. Mining hardware tends to be easy to detect and shut down. However, the same cannot be said about computers running validator nodes.

• Increased user base There is a high possibility of more people and developers flocking to the Ethereum network after the Merge. High gas fees and slow transaction speeds have kept many people and developers away from the network. However, after the merge, the inefficiencies can become a thing of the past.

Ethereum Merge Risks

• Technical challenges Critics of Ethereum believe the network is taking a huge gamble switching from Proof of Work to Proof of Stake while in operation. There could be many unforeseen bugs with the new blockchain, which puts at risk $183 billion worth of Ether in circulation.

Solana is a good example of a Proof-of-Stake blockchain that has suffered several complete outages this year (2022).

Proof of stake is also seen as a fairly new consensus mechanism when compared to proof of work. Proof of work has been around for a while. It has been tried and tested and proven to be highly secure.

Will the Merge affect Ether Prices?

Different investors predict a different outcome for Ether prices after the Ethereum Merge. Some investors predict a bull run for the digital coins while others predict a bear run.

Considering the current state of the crypto market and that Ether is down by 60% since the beginning of the year (2022), some investors believe once the merge unlocks locked Ether many holders will sell their coins, resulting in their price depreciation.

However, some investors believe Ether prices might go up after the Merge due to Ethereum’s transition to proof of stake. The proof of stake consensus mechanism will enable Ethereum to attract more users and developers.

When will the Merge happen?

The Ethereum Merge is expected to happen in September this year (2022). Tim Beiko, an Ethereum developer and prominent figure in the Ethereum Foundation, put Sept 19th as the tentative date. The Merge timeline is, however, not final.

The Ethereum Merge date announcement saw Ether prices go up considerably to $1,600, which is a good sign for those who believe the Merge will positively affect Ether prices.

Bottom line

The Ethereum Merge is a big deal in the crypto space. If it's a success then there are plenty of benefits to look forward to from the Ethereum network and a few risks worth considering.

Considering the Ethereum Merge is happening when the crypto industry is experiencing a downturn, there is a lot of uncertainty about how the market may react. Some investors predict a positive outcome while some are not so sure. Do your research.