It's the most anticipated event within the cryptocurrency community right now – and arguably the most important since Bitcoin was invented.
But what’s the hype all about? And what impact will it have on Ethereum?
Read on to learn everything you need to know about the Merge, or jump ahead to a specific section below:
The Merge is an upgrade to the Ethereum network. It will merge the current Ethereum Mainnet – the Ethereum blockchain where currently all transactions are processed – with something called the ‘Beacon Chain’.
To do this, Ethereum will shift away from proof-of-work (PoW) and adapt the proof-of-stake (PoS) mechanism.
Proof of work and proof of stake are the two major consensus mechanisms. Essentially, they’re ways of verifying new transactions, adding them to the blockchain, and creating new tokens. Just like in a traditional financial system where banks and payment providers need to work together, decentralized cryptocurrency networks need ways to verify transactions.
Proof of work was used first and adopted by Bitcoin. A network of miners gets to work validating transactions and adding them as new blocks on the chain. As a reward, they receive new cryptocurrency. It requires a huge amount of processing power, and as a consequence, it is a very energy-intensive process.
Proof of stake doesn’t involve any miners. Network participants are referred to as validators, who earn a reward for validating transactions. The network chooses validators based on the size of their stake and how long they’ve been holding it. It’s therefore rewarding the participants that have invested the most in the blockchain.
Ethereum’s energy consumption will be reduced drastically – up to 99% – which is a big deal given how much focus there has been on the massive amounts of energy required to power cryptocurrencies. Aside from that, it also means participants with smaller computers would be able to use the network. It will also make Ethereum more secure, as it will become increasingly difficult and expensive to attack the blockchain.
With the end of mining, the overall supply of Ethereum will start to decrease over time and make the cryptocurrency a deflationary one.
The merge is expected to happen between September 13 and September 15, 2022, although delays could occur.
Given the scale of the operation and fragile investor sentiment, any potential issues could cause significant price volatility.
What could go wrong?
Investors holding ETH do not need to do anything.
Active traders don’t need to do anything either but should be prepared for high volatility and the possibility of a temporary trading halt.
Improved security, faster processing of transactions, and reduced costs are all positive effects of the Merge that will boost investor confidence. ETH becoming a deflationary cryptocurrency will also increase its appeal as store of value – in other words, more investors could be holding onto their ETHs for longer.
Technical issues could cause trouble for ETH – especially if they are of a serious nature. Overall market sentiment also plays a big role. The Merge created a hype that hasn’t been seen in a long time in the crypto market. However, it remains to be seen if bulls will stay confident post-Merge or whether many will look to exit their long positions.
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When most people think of cryptocurrency, they think of Bitcoin. And while Bitcoin is still the biggest and most well-known coin, there are now many other options to invest in.