The Merge is here.
The long-awaited update of the Ethereum platform - the internet of crypto space - has finally arrived after many years of rumors and preparations.
Crypto evangelists say that it will completely shake up the industry as Ethereum is at the center of everything that is done around this young economy which wants to be completely decentralized and break with what is done today.
Why Is Ethereum Important?
A little reminder first: Ethereum is the second crypto platform after Bitcoin. Like Bitcoin, this ecosystem has a native token known as ether (ETH).
Ether is the second largest cryptocurrency by market value with a market capitalization of $195 billion at the time of this writing, according to CoinGecko. Bitcoin (BTC) is the first cryptocurrency with a market value of $384.2 billion. Between them, BTC and ETH represent 56% of the cryptocurrency market which is currently valued at $1.03 trillion. BTC has a market share of 37.2%, while ETH's market share is almost 19%.
Finally, to better understand what Ethereum represents, it should simply be said that the platform is the place where decentralized finance apps (DeFi) are developed. DeFi offers classic financial services such as loans, trading, insurance, etc. But there's a major difference with classic banks and financial firms: there are no middlemen.
On Ethereum are also manufactured, or minted the famous non-fungible tokens or NFTs, which are considered the future of art and intellectual property.
Finally, the developers are also working on different uses of blockchain technology.
Basically, Ethereum is a kind of fair where you can find everything that the crypto industry offers or is working on.
But there are problems.
The Problems that the Merge Will Solve
The first of these problems is that the mechanism for validating transactions - which ensures the security of the Ethereum ecosystem - consumes a lot of energy.
This system known as proof-of-work is highly criticized by climate activists. This thus prevents large investors from investing as they really would like in the crypto industry to avoid violating the trendy acronym ESG - Environmental, social and corporate governance. It should be remembered that the Bitcoin ecosystem also uses proof-of-work.
The Merge is also supposed to reduce transaction fees on Ethereum, or gas fees according to the vocabulary of insiders.
This same update should also speed up and streamline transactions. Currently you have to be very patient when you make a transaction on Ethereum while it takes a few minutes to complete an operation with a Visa, Mastercard or American Express card.
So what Is the Merge?
To simplify, the Merge is simply a way of doing things differently. Basically, instead of continuing to use an energy-intensive mechanism, the platform will replace it with an eco-friendly transaction validation system. It will therefore move from proof-of-work to proof-of-stake.
In fact, computers or miners will no longer have to compete through complex mathematical puzzles to win the right to validate a block of operations and earn ethers in return.
In proof-of-stake, the validators are appointed from among a group of cryptocurrency owners. Since many computers no longer have to compete for the right to verify transactions, the system's energy consumption will decrease drastically.
That decline will be about 99.95%, estimates the Ethereum Foundation, a group of developers who oversee the blockchain.
Validators have replaced miners.
What Does the Merge Change or Doesn't Change for the Ordinary Crypto User?
At this precise moment, the Merge does not change anything for small investors because this software update will not accelerate the number of transactions that can be performed per second. (This will come much later, say the developers.)
Indeed with proof-of-stake the blocks of validated transactions will be produced roughly 10% more frequently than on proof-of-work, according to the Ethereum Foundation.
"This is a fairly insignificant change and is unlikely to be noticed by users," the Foundation said. "Finality can offer additional security guarantees, but will not significantly speed up transactions."
For those who thought that we were going to switch to a system identical or even faster than transactions made with Visa or Mastercard, you will have to wait.
The Merge is also not going to make transactions cheaper out of hand.
"The Merge is a change of consensus mechanism, not an expansion of network capacity, and will not result in lower gas fees," the Ethereum Foundation said.
This means that you will continue to pay significant gas fees for applications that run on Ethereum. (And there are many.)
But like before the Merge, users still have cheaper alternatives like the Solana and Avalanche platforms which are considered "Ethereum killers."
What Will the Merge Really Do for Small Investors?
At this point, this event that crypto fans have been talking about for months only accomplishes two things for ordinary users. The Merge will give a good conscience to those who say they are rather green and who were in contradiction with their values by investing in crypto. They can now reconcile their values and their investments. Basically, the Merge introduces wokism and political correctness to the crypto industry.
The Merge could also allow those who hold ether to see the value of their portfolio increase because if the update goes well it is likely that ether prices, which are up more than 51% since the beginning of the third quarter, continue to increase.