Ethereum’s “The Merge” is a hot topic, so let’s talk about it. Again. I’ll start. Why do ETH heads get all foamy at the mouth over it? Because he’s studied it from pretty much every angle, we asked Collective Shift’s head of research, Matt Willemsen.

But before we get into his analysis, we’ll topline it all with a “Honestly, what the Fork is the Merge” preamble…

 

What the fork is The Merge?

The Merge is the single-most talked about event in crypto since a Korean scientist invented a toilet that turns poo into energy and rewards depositors with digital currency.

Granted, that’s not the best example, although Bitcoin maximalists might like the “sh*tcoin” connotation.

Ethereum is no sh*tcoin.

In fact, it’s probably about time to retire it from “altcoin” status, too, especially if its second coming succeeds in taking it to a higher plane of existence.

The Merge, which is a “hard fork” upgrade, is that second coming. It represents the protocol’s biggest renovation it’s likely to ever undertake – the monumental and long-awaited shift from its proof-of-work model to proof-of-stake.

The proof-of-work (PoW) consensus mechanism, most famously employed by both Bitcoin and Ethereum, uses energy-intensive crypto mining to validate block transactions and secure the network. Proof-of-stake (PoS) eliminates the need for a computer mining rig to do exactly this.

Instead all that’s required to do to validate transactions and create new blocks in a PoS blockchain, is to “stake” a certain amount of crypto. And that’s infinitely more energy efficient than using “crypto rigs large enough to brown out entire US states”, as Gregor “My Beard’s More of a Heritage-Protected Biological Ecosystem Than Yours” Stronach put it the other day.

There’s way more to it, obvs, which Investopedia delves into comprehensively, as does the most excellent content lead over at CoinJar, Luke Ryan.

Furthermore, Matt Willemsen from Aussie crypto-edu platform Collective Shift gave us some also-very-excellent Merge-related clarity the other day…

 

ETH to outperform the market… well, for a few days

Hey Matt. Give us your quick take on The Merge if you would? What does it potentially mean for Ethereum and crypto more broadly in the longer-term? 

Sure. In my opinion, the Merge will further entrench Ethereum’s status as the world’s leading smart contract-optimised blockchain. 

Why do you think it’s been near mythologised by large parts of the crypto community?

I think that’s because how long it’s been promised by Ethereum core developers. The fact it’s been delayed several times underscores the sheer magnitude of the ambitious undertaking of replacing a foundational component of a live blockchain whilst retaining its history.

Can you outline, or maybe bullet point the main benefits you see the Merge bringing to the Ethereum network and investors?

No problem. [Matt kindly bullet-pointed them in an email for us.]

  • The Merge will reduce Ethereum’s energy usage by roughly 99.95%.
  • ETH’s issuance rate will fall dramatically, making it more attractive as an investment – all else being equal.
  • It will bring about less technical risk for prospective developers and investors.
  • More development resources will be available to focus on making Ethereum more scalable and secure.
  • Environmentally-conscious companies and people will be able to use Ethereum. (Particularly in the NFT sector, and that’s because many companies and artists have cited environmental concerns as a reason for not using Ethereum.)

Do you expect The Merge to be a catalyst for market resurgence this year?

No. If the Merge is successful, I expect ETH to outperform other major crypto-assets for really only a couple of days. After that, I think macroeconomic conditions and US monetary policy will continue dictating the performance of the crypto-asset market, including ETH.

 

You don’t need to do a single thing

What do you think are some potentially negative impacts of the Merge? Are there any?

Unfortunately, there will likely be a short-term rise in scams that exploit people’s lack of knowledge related to the Merge. It’s important to remember – you do not need to do anything with your funds or Ethereum wallet before the Merge.

Another potentially negative impact is increased centralisation risk, particularly if the percentage of staked ETH controlled by a given exchange (e.g. Coinbase, Binance, Kraken) or liquid-staking protocol (e.g. Lido) exceeds critical thresholds such as 1/3, 1/2 and 2/3.

Should Bitcoin holders be concerned about a negative-publicity knock-on effect related to the comparison of energy use between PoW and PoS? 

No, I don’t think they should be concerned.

Do you have any thoughts on the likely ETH PoW chain split and whether there is a value play there for those who will be receiving duplicated PoW tokens?

There’s potentially some value in the very short term for those with the technical knowledge and time. It’s very high risk, though. Personally, I’m not getting involved.

Anything else Merge-related you think Coinhead readers should know?

I just think it’s important to understand that a mechanism like proof-of-work or proof-of-stake is but one component of how a blockchain functions.

For example, while blockchains such as Solana, Cardano, Algorand and Avalanche all use proof-of-stake, they each differ significantly in regards to security, decentralisation and scalability. In terms of crypto learnings, I think this is among the hardest concepts for people to grasp.

 

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

 

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