Ethereum merging from P.O.W to P.O.S might happen as early as August of 2022.
Key points
- Ethereum co-founder said the merge may happen in August.
- The merge is a move from a proof-of-work to proof-of-stake validation model and will cut Ethereum’s energy consumption by 99%.
- The merge is one part of a bigger upgrade for the important smart contract cryptocurrency.
The long-awaited Ethereum (ETH) merge might finally be upon us. Vitalik Buterin, the man behind the world’s second-biggest blockchain, said the network’s move to proof-of-stake should happen in August. Though he quickly added that it might take a few more months.
Speaking at an ETH web developer summit in Shanghai, Buterin said, “If there are no problems, then the merge will happen in August.” He then said it might also take place in September or October. Buterin’s hopes were echoed by several Ethereum developers.
The much-delayed merge was slated for June, but developers delayed the important step. Given that there’s around $25 billion at stake and this is a complicated technical move, it’s more important to get it right than rush the upgrade. Developers are busy with various tests and testnets, but it is still like attempting to repair a car engine while speeding down the highway.
What to expect from the Ethereum merge
The Ethereum merge is a move from the original proof-of-work validation model to a more environmentally friendly and scalable model called proof-of-stake. Bitcoin (BTC) uses proof-of-work, as does Dogecoin (DOGE). Right now the three cryptos each consume as much energy as a small- to mid-sized country. The merge will cut Ethereum’s energy consumption by about 99%.
The merge is an important step in a series of staged upgrades designed to solve some of the network’s issues. It was the first blockchain to introduce the all-important smart contract capabilities, and still hosts a large number of decentralized applications. However, Ethereum struggles with high gas fees and heavy network congestion. As a result, its first-mover advantage has been eroded as projects move to faster and lower-cost Ethereum alternatives.
Unfortunately, the merge is not a magic bullet for all of Ethereum’s problems. It won’t, for example, reduce gas fees. That won’t happen until at least next year when the network introduces something called “shard chains.” It is this final step that will reduce both network congestion and gas fees.
What it means for investors
After Terra’s (LUNA) collapse, crypto investor confidence is low and many are hoping the merge will give the whole market a much-needed boost. It’s true the Ethereum merge is a crucial step on a bigger journey. But there’s a danger it gets overhyped and speculation pushes ETH’s price to unsustainable levels. Not only are there unrealistic expectations about what the merge might achieve, there may also be further delays and possible technical glitches.
The entire Ethereum upgrade will be a landmark event for the crypto world. If successful, it may help Ethereum retain its position as the leading programmable cryptocurrency. However, the longer it takes, the more market share Ethereum loses. At the start of 2021, about 95% of the money locked on blockchain platforms was on Ethereum. That figure is now 60%, according to DeFi Llama.
If you’re tempted to buy Ethereum now with a view to selling it when the price surges in August (or September or October) when the merge is complete, tread carefully. There are no guarantees the price will surge, especially as this has been in the works for some time and may already be priced in. Plus, this type of short-term trading can be very risky. For example, you might not be able to time the market and sell at the high. There might be further delays and if there are any serious technical problems, ETH’s price will probably fall dramatically.
A better bet? Decide whether you want to buy Ethereum and hold it for the long term. Look at how you think it might perform in the coming five to 10 years or more and how it fits with your other investments. That way you can weather any volatility (good or bad) that will undoubtedly accompany the upcoming merge and eventual upgrade. As with any crypto investment, only invest money you can afford to lose. Ethereum may be the second-biggest cryptocurrency, but it still carries significant risks, especially as we approach D-Day for the merge.
