Explained: What’s the Ethereum Merge and how it can change Eth value

• The update in the Ethereum network, also known as ‘the merge’ is scheduled between 13-15 September.
  
• Ethereum prices have been climbing steadily, and trading at around $1,600/eth ahead of the ‘merge’ in mid-September.
  
• Ethereum 2.0 is faster, more energy efficient and can also cost less. However, developers must wait a while before availing these benefits.

One single transaction using Bitcoin can light up the 160-storied Burj Khalifa. While it’s no match to the world’s tallest building, an Ethereum transaction too takes as much energy it needs to light up the Leaning Tower of Pisa.

Most cryptocurrencies in general generate electricity bills that equals the collective consumption of a small country. This is because mining of crypto requires using high power computers that need tons of electricity.

Ethereum with its ‘big merge’ and the launch of Ethereum 2.0 intends to change that.

What’s Ethereum Merge?

This blockchain technology which is known for executing smart contracts, is taking the next big step towards efficiency in general, in addition to energy efficiency, costs and others.

The Merge will divide the Ethereum network into smaller data blocks, making more transactions at greater speed in a process known as sharding. Ethereum 2.0 in its new avatar, can bring back some of the developers that this blockchain lost, most experts hope.

“Developers building web 3 projects find Ethereum expensive as it asks for higher gas fees. But post Ethereum 2.0, these developers can even come back to Ethereum. The transition to proof-of-stake is expected to reduce Ethereum’s energy consumption by 99.95%,” said Naimish Sanghvi, co-founder of decentralized application MultiSender.

‘More use cases than Bitcoin’

As crypto enthusiasts, investors and others are looking forward to this, Ether, Ethereum’s native currency has been surging in value – trading at around $1,600/eth in ahead of the ‘merge’ in mid-September. They hope that Ethereum’s merger effects will increase the demand for the currency.

In comparison, since July, Bitcoin has decreased 29% in value, according to CoinMarketCap, a global tracker website for cryptocurrency asset prices owned by Binance. Though Bitcoin value is still much ahead of Eth at $19,834.

“There are more use-cases for Ethereum than Bitcoin as Bitcoin is a cryptocurrency and its use is restricted to financial transactions. Ethereum in itself is a blockchain with its native currency, Ether,” said Kaavya, founder of Lumos Labs, a developer-centric metaverse platform.

Here is what the merge means for crypto users.

1. Faster transactions

Ethereum 2.0 aims to process 100,000 transactions per second that would significantly reduce the gas fees – the fees that developers or crypto users pay the blockchain to complete a transaction.

After sharding, it can fit in more transactions, that’ll make it faster and easier to access. Since more users can use it, easily and going by the ‘economies of scale’ concept, it will turn cheaper too.

2. Less Gas Prices

Ethereum currently can only process 30 transactions per second and the cost of transaction or gas fees can go as high as $100. Less number of transactions means higher gas fees.

As the throughput increases after the merge, it can fall as low as $0.02 post-rollups, according to Vitalik Buterin, founder of Ethereum Network.

3. Mining more environmentally friendly, less energy intensive

According to the Ethereum Foundation, a single Ethereum 2.0 transaction will consume electricity equal to about 20 minutes of TV (35 watts). Buterin aims to reduce the energy consumption by 99.95%.

Originally, to make a transaction, one requires high powered computers in order to solve the complex mathematical equations to earn rewards for mining or validating crypto transactions.

Ethereum 2.0. requires much less energy to verify crypto transactions as it does not require validators to solve these complex equations and does not need hardware.

4. More decentralization

Sharding, dividing the Ethereum blockchain into multiple data blocks will lead to more creators flocking to Eth 2.0 for building projects. A majority of web3 projects are based on Ethereum blockchain.

Its applications are wide-ranged —making banking more customer-centric, redefining how digital payments are done without data being owned by third parties. It also aims to reduce reliance on fiat money.

5. Better security

The Solana hack that wiped over $8 million from user assets, shows how vulnerable wallets are, to hacks. The switch to proof-of-stake for Ethereum will make it incredibly complex and expensive for hackers.

While users can consume lesser power, hackers will need a lot more energy to crack it, making it extremely energy intensive. Every validator on the network will have a traceable address.

There is much to look forward to from the merge, but it won’t produce immediate results. There would be stages that Ethereum 2.0 will have to go through to achieve its full potential.

Buterin said at Ethereum Community Conference on July 22 that Ethereum will only be about 55% complete after the ‘merge’. The complete merge will take place some time in 2023.

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