Ethereum ‘Merge’ Has Huge Implications for Crypto Mining and Bitcoin. Here’s what you need to know

The world’s second largest cryptocurrency is undergoing a significant transformation that will change the technology to cut carbon emissions by more than 99 percent, according to the Ethereum platform.

The transition known as “the Merge” is coming to Ethereum, which will upgrade its blockchain technology from the energy-intensive model used by rival Bitcoin.

While anticipation surrounding the move has seen the price of Ethereum’s token, Ether (ETH), double over the past two months, not everyone is looking forward to the change.

Euronews Next looks at what is changing and how the transformation could affect the crypto market.

What is the Ethereum ‘Merge’ and when does it happen?

The first part of the Merge upgrade began on September 6 with the Bellatrix upgrade, which will mark a so-called “hard fork” that will convert Ethereum from a proof-of-work (PoW) to a proof-of-stake (PoS) ) base.

The second part of the upgrade will take place between September 13 and September 15, the Ethereum Foundation said.

Ethereum development team Nethermind said on September 10 that it had completed the shadow fork test prerequisite, which stress tests synchronization assumptions to ensure network security. The previous one was performed in April, and this was the last.

The switch will take Ethereum from the energy-intensive PoW model to the PoS model. Both mechanisms are used to confirm transactions and add new blocks to the chain, but they work differently.

The PoW system works as a competitive numerical guessing game, and the first person to solve the puzzle is awarded a fixed amount of cryptocurrency.

It requires a global network of computers to run simultaneously when a transaction takes place and therefore a lot of energy.

In the PoS system, you do not need the energy-intensive hardware as you acquire coins, which are put as collateral in the staking process and there is then a random selection through the software.

How powerful your machine is does not increase the chance of winning and being able to create the next block for the blockchain. The only thing that increases your chance of winning is just getting more coins.

Could the Ethereum Merger Make Crypto Greener?

The switch to PoS is “a step in the right direction on sustainability,” Alex de Vries, an economist who runs the website Digiconomist, told Euronews Next.

He estimates that the energy consumption of Ethereum mining is around 72 terawatt hours a year, which is equivalent to the carbon footprint of Switzerland.

De Vries says he is working to find out how much the switch will save energy. At the moment, he estimates it’s at least 99 percent.

“This means that the power consumption of a country like Portugal (a quarter of all data centers in the world combined) disappears overnight,” he said.

But he added that PoS won’t completely solve crypto’s energy problem.

“Blockchain by design is just never going to be super efficient technology,” he said.

A merger or a split?

The choice of Merge name is because Ethereum adopts the Beacon Chain PoS system, but it is a bit misleading as there will probably be more splitting, creating the PoS chain and a PoW chain.

This fork is not the first time in crypto history. Bitcoin has also seen splits after upgrades and has spawned Bitcoin Gold and Bitcoin Cash.

For investors and the crypto startup scene, Merge won’t have that much of an impact, according to Eloisa Marchesoni, a tokenomics expert.

“The worst impact will be on the miners,” she told Euronews Next, explaining that the value of the old version will likely decrease and the equipment used to mine will not work for the new PoS model.

For Ethereum, if the PoS version takes off and the price is high, the PoW version may have a low price, which will force the majority of miners to shut down.

Marchesoni, who mines Ether himself, said the expensive equipment is not a total waste, as you can find alternative coins to mine on PoS that are compatible. Although it may take a month to do so, it does not cause much trouble.

The main point miners are upset about, she said, is the centralization aspect and the feeling that Ethereum “behaves like Wall Street and the banks.”

As big as Bitcoin?

Although it may be cleaner for the environment than Bitcoin, the upgraded Ethereum is unlikely to reach the top spot in the crypto market.

“Bitcoin will always be like electronic digital gold. And Ethereum is like fiat money, it’s just two completely different things,” Marchesoni said.

“And no one is holding their larger capital in Ethereum, people will be holding large capital in Bitcoin. None of the OGs, as we call them, none of the originals in crypto are actually speculating that much on Bitcoin”.

Marchesoni expects Ethereum to see a small increase in price, but only for perhaps a few days or weeks.

In the long term, she believes that Ethereum lays the foundation for PoS, which unlike PoW cannot be used for metaverse or NFTs, but that other cryptos will develop the blockchain for new protocols and new governance models.

De Vries also does not believe that Merge will lead to the last crypto bull. While “it’s a step in the right direction” for cleaner crypto mining, he said it doesn’t solve the problems with PoS, mainly scalability.

However, Merge may lead politicians to ban PoW in the coming years as they try to regulate crypto and have pointed to concerns about the environmental impact.

“If Ethereum can go from proof-of-work to proof-of-stake, why wouldn’t they just say, ‘Bitcoin, you’re either going to do the same, or we’re not going to allow Bitcoin anymore,'” de Vries said.

“I think it’s a very real risk if it (the merger) really succeeds. I fully expect that this is going to be back on the table again, maybe not right away, but definitely soon”.