The Ethereum Merge Explained

Introduction

The Ethereum Merge has been one of the most ambitious and awaited changes in the network. Long-awaited because there first plans about this software upgrade data back to 2014, and the upgrade occurred on 15 September 2022, almost 10 years later. The fork also opens new opportunities for the usage of blockchain in different components and standards, due to the problems and inefficiency that the new consensus mechanism brings.

Furthermore, although Ethereum is already the network with more utilities and business cases, this can boost the commerciality of this network and push it to thew next level with the entry of new players.

Besides, this event can be the one that turn the tables in order to recover the lost trust and see that there are different projects trying to enhance the utilities of the different chains

Nonetheless, even if some sources said that this Merge will fix some of the known issues in the Ethereum network, they don’t have any impact on them. We will need to see additional upgrades in order to see if these topics are modified.

This is basically the points that this network upgrade entails and what, in order to avoid misunderstandings, problems that are not tackled with this modification in this software change.

What are the main changes?

1. Energy

Switching from the Proof of Work to Proof Stake protocols means that the energy consumption will decline approximated by 99%.

Energy waste and efficiency has been one of the topics that some crypto detractors such as regulators have included as one of the disadvantages of the growth of blockchain.

Several have criticized some of the PoW blockchains such as Bitcoin or Ethereum because of the negative environmental impact they had and the excessive usage of energy to validate the transactions in the network.

Some of the most known - and controversial - usages of Ethereum is the minting of NFTs using ERC-721. This change will have a much better impact on the volatile market of the NFTs because of the drop of the energy usage to mint them, enabling the growth of this business.

Regardless of the other technical details, it is a great milestone to reduce the energy usage on around 99% thanks to the Merge

2. More democratic rewards

Apart from the change in the energy efficiency, the switch to Proof of Work also means that via this mechanism, the staking rewards for validating and securing the network that were reserved for those with powerful computers is over.

Please note you will need at least 32 ETH (around 48,000 USD at the time of writing) plus the computer to perform staking on your own. However, there are more used options such as liquidity staking, using ERC-20, where you may allocate part of your ETH tokens to a pool (in order to reach the minimum of 32 ETH).

In case you are not happy with none of these options, despite not being that popular, another possibility in order to receive staking rewards for your share are staking them via a centralized exchange.

As with all these cases, please do your own research before delegating your tokens.

3. Price and value

Price and value must not be understood in the wrong way. This is also not a good or bad thing coming from the Merge.

Although the Merge has been waited for years, the truth is that Ether has lost around 60% of its market value during 2022. However, if we use the CMC 200 index as reference, the price drop is also aligned with the drop in the CMC 200 index.

On the other hand, for instance, it had an increase of 100%, when the prices went in August from 1,000 USD to 2,000 USD.

As discussed in other topics, there has not been a drastic change – upwards or downwards- in Ethereum’s price on the date the fork was completed. As with other assets, the price is already discounted when these big events occur. As you may have noticed, there were a surge on the price in the months prior to the Merge.

In the future, Ethereum will be transition to a deflationary asset. Before the Merge and with the PoW, 13,000 new Ether tokens were issued on a daily basis. The change changes this and from 13,000 we will see around 1,600 Ether tokens per day.

The less tokens there are, the higher the price should be for Ether tokens, being an alternative deflationary asset.

Aspects that remain unchanged

Probably some of the most common topics when it comes to Ethereum are fees. The bad news is that the logic for these remains unchanged. These are other problems that Ethereum Merge does not solve or haven’t been modified with the Merge.

1. Fees

“The fork will definitely make the gas fees cheaper.” This is wrong and the changes that occurred in the network did not have any consequences on the fees that must be paid on each blockchain transaction to reward the validators of the transactions occurring in the chain. The last change in the network that affected how the Wei that must be paid per transaction was the London Upgrade in 2021.

2. Speed

Related to the blockchain dilemma, the Merge does not make the speed faster neither increases that number of transactions that can be processed per minute. There may be a slight improvement in the speed, but it will be unnoticeable for users. For the speed changes, we will have to wait in case this modification arrives one day.

Key takeaways

There has been a lot of hype because of this Merge milestone, and it has been waited for some time now. Due to all the news surrounding this topic for the last year, these are the main facts that we can say in order to conclude and see how this topic evolves.

Environmental impact

This is definitely the biggest changes and main advantage of the software upgrade. Not just related to the current energy crisis, this is a huge step in order to protect our planet with a more sensible and responsible usage of electricity. This can be a key milestone for a reaching sustainability in the crypto industry (although for example there are no plans for example for Bitcoin and switching from PoW to PoS in this case) because of the new possibilities on the different networks and standards that enables.

Staking for all users

While validating and securing the network was an action reserved for those with more computing power, hence the rewards were just for them, the change to PoS means that all of us can take part securing the transactions and getting rewarded for the Ether tokens we use to achieve that.

Commercial impact

Having reduced the energy usage and improving the energy efficiency has also opened new ideas to Ethereum, which already had many apps around this ecosystem. Furthermore, this is not just important to Ethereum, but other chains, and it also means that the evolution of the different blockchains will lead to a better experience for the users and more business ideas that some years ago were unthinkable because of sustainable issues.

Having explained the most important changes and having also denied things that the Merge does not change, it’s true that some of these changes can boost Ethereum and the crypto sector. At the same time, it cannot be denied that some users have been disappointed because they were expecting much more. Time will tell.