Why crypto bros are making a fuss about the Ethereum merge

The Ethereum blockchain was launched by Vitalik Buterin way back in 2015, with a native coin called Ether (ETH). Today, it’s the second biggest cryptocurrency out there, despite still being roughly 19 times smaller than Bitcoin in value.

Since it’s so much smaller, you might wonder why people even care about it. That’s a fair point. The answer lies in the fact that this king of the altcoins has a lot more capabilities than Bitcoin. Ever heard of NFTs? Web3? Decentralised apps (dApps)? NFT marketplaces? The metaverse? Well, Bitcoin doesn’t really have anything to do with any of those. You can’t make NFTs on Bitcoin’s blockchain, nor get into the rest of those next-level web aspects of crypto.

Ethereum, on the other hand, has crypto-fingers in all of the virtual pies. As a result, there’s genuine speculation over whether Ether might eventually be able to jump up and take the top spot from Bitcoin. And last week, the altcoin finally completed the Ethereum Merge, which is a huge part of that potential becoming a reality.

So what the hell is a merge? On a surface level, you can think of it like a massive software update. But we’re not talking iOS 14 to iOS 16.0073641 or whatever it’s at now. If we think of Bitcoin as an old Nokia of sorts, Ethereum 1.0 might be like the first set of smartphones. Now, Ethereum 2.0 brings it into iPhone 14 Pro territory.

The first phase of ​“the merge” was completed back in 2020, but it was announced way back in 2014, before Ethereum 1.0 even launched. Of course, eight years in crypto time is an absolute eternity, and the many delays had people wondering if the merge would ever actually happen. But now it’s here, so let’s unpack what the upgrades actually are and what they mean for crypto.

The overall upgrade is a shift in how transactions are processed on the blockchain. Until now, Ethereum was running using a ​“proof of work” mechanism – we’ve explained what this is here. But TL:DR: blockchains use a proof of work, stake or history mechanism in order to process transactions, spot any issues, mine coins and so on.

Now, Ethereum 2.0 runs using ​“proof of stake”. In theory, this means that transactions can become much quicker and cheaper to process. While this won’t happen immediately, the idea is that if it becomes cheap and easy to use (like instant ramen), then more and more people might well get involved. If that happens, then the supply of Ethereum, which has a limited capacity, will start to be reached, which will make prices climb. It’s a bit like how landlords are hiking up rent at the moment: places to live are in short supply, so landlords are charging more because, simply, they can.

A more wholly good thing is that this upgrade should also ensure that security across the blockchain is even better. This time, it’s not much to do with crazy crypto technology, but simply the fact that proof of stake requires people who want to mine/​process transactions to stake their coins as a sort of deposit (the benefit of staking is you earn interest). The starting price is looking like it’ll be over £50,000 – hefty, yes, but this will apply to everyone who wants to access those elements of the blockchain, including hackers. Hopefully, this will act as a deterrent, meaning there might be less hacking attempts. You could still get scammed on Discords and reddit, and with basically any memecoin you decide to buy, but it’s still a very decent plus.

The upgrade also has huge environmental benefits. Proof of work is basically the fossil fuel of crypto technology, using masses of energy by making all the miners’ computers solve ridiculously complicated maths equations, with the first to do so being able to mine the crypto. And Bitcoin still uses it. On the other hand, Ethereum’s new proof of stake process could, as reported by the World Economic Forum, ​“cut the network’s energy usage by as much as 99.5%.”

So they’ve cracked it, have they? Does this make all the other altcoins, Ethereum competitors like Cardano and Solana, and Layer 2’s (if you don’t know what this trendy new set of coins is, read this) redundant? Well, it could make some of them less useful, but many coins serve different and specific purposes, so they’ll probably be OK. Layer 2 crypto might even benefit, because if Ethereum wants to scale up while getting cheaper and faster, it’ll probably have to outsource some of the workload to other places. This is a major function and purpose of Layer 2 blockchains like Polygon (MATIC), METIS and Loopring.

And this is just the beginning of the merge. Other upgrades that might allow things like Web3 to flourish (should the masses actually get on board with it in future) will start to trickle in, too.

So yeah, the merge is a big boi upgrade. Now you can tell all your mates and look real smart about it.