Are You Ready for the Merge?

by Jurica Dujmovic
By Jurica Dujmovic

In case you’ve been hibernating this crypto winter, you might have missed the fact that one of the biggest, most ambitious upgrades in crypto history is soon to be unfolding: The Ethereum (ETH, Tech/Adoption Grade “A”) Merge.

To discuss ins and outs of this big event, as well as what an average investor should do, I had the honor to pick the brain of Mark Hull, Chief of Growth at Hubble Protocol — a decentralized finance protocol built on the Solana (SOL, Tech/Adoption Grade “D”) blockchain.

Here are the highlights from that chat …

Jurica Dujmović: Great to have you, Mark. Let’s start with the basics. What is the Ethereum Merge?

Mark Hull: Good to be here. The Ethereum Merge is the handover from a blockchain that currently operates on a proof-of-work consensus mechanism to one that relies on proof of stake. Both methods secure the information on a blockchain and rely on economic incentives, but PoS relies on 99% less energy to meet its goals.

PoW and PoS are radically different modes of “proving” that data is added and stored correctly on a blockchain. Executing the Merge will be an engineering feat comparable to switching out the combustible motor on a Model-T Ford to a fully solar-powered gizmo while the car is rolling down the highway.

A better analogy for the Merge may be trying to replace an antique train locomotive (Ethereum) that’s so important to billions of dollars’ worth of economic activity that it can never stop chugging along. Another train line (Ethereum’s Beacon Chain) that operates on 99% fewer emissions is being built on tracks side by side to the original coal-powered train, and it’s getting ready to onboard all the cargo from its predecessor at once.

Jurica: At the very start, I’ve called this “one of the biggest, most ambitious upgrades in crypto history.” Why is it so important for the crypto community as a whole?

Mark: Ethereum is the first blockchain that recognized the technology Bitcoin (BTC, Tech/Adoption Grade “A-”) pioneered could serve as an operating system capable of hosting applications (instead of just sending tokens back and forth).

Now, most of the capital in DeFi is locked on decentralized applications hosted on Ethereum, which has been battle-tested for years and is trusted by nearly everyone in the crypto community.

Successfully merging blocks from a public PoW chain to a public PoS chain has never been attempted before, and the blockchain with the highest assets under management in DeFi is about to give it a try. Additionally, Ethereum’s merge into a PoS chain has been discussed for years, and the fact that it’s finally happening is one of the biggest news stories in crypto history.

Jurica: It seems like it’s a given that Ethereum will fork during the Merge. Can you explain what that means, and why it’s happening? It’s not a new concept.

Mark: Correct. Ethereum has hard forked into two communities before, which is why Ethereum Classic exists. Many people are talking about Ethereum forking yet again with the Merge looming close.

When a blockchain makes such a significant upgrade as the Merge, it’s technically forking the chain into a “new ledger” that exists separate from the “old ledger,” and some people might like how the old ledger did things, so they could stick with it.

Ethereum forked years ago to reverse a hack that compromised a significant amount of ETH. However, some users felt that “code is law,” and they wanted to continue transacting on a blockchain where this theft was still happening, so that became Ethereum Classic.

The rest of the Ethereum community — the majority of its users — began transacting on the hard fork that we know as Ethereum today, with its ETH being the second largest token in crypto.

Other hard forks have occurred to upgrade the Ethereum network since then, and users have followed along; it’s a matter of attracting the community.

Some members of the crypto community feel like PoW is the one true way to ensure a blockchain remains secured, and they would be interested in following the Ethereum PoW chain once it hard forks to PoS.

Much of the Ethereum community has already begun staking its ETH toward securing the PoS network, so it seems investors in favor of a hard fork will be in for an uphill battle.

Jurica: Let’s go back to the Merge. Can you tell us a bit about the benefits it will entail? What about challenges?

Mark: The benefits of the Merge are mostly ecological.

Ethereum won’t suddenly become a faster or cheaper network, but it’ll take less energy than a small, industrialized nation to run. Moreover, Ethereum has long been spearheading the future of disruptive technologies; the Merge acknowledges that a future built on PoW is unsustainable if blockchains are supposed to onboard billions of users one day.

Many challenges are associated with completing the Merge but maintaining the network's security throughout the process is probably the most important of them all. Ethereum has notably built its reputation on security, and if anything were to go wrong as it attempts to switch from a system that has proven itself over time to a system that is fresh out of the box, the consequences could be disastrous.

The aftermath of EIP-1559’s announcement — which drastically changed how Ethereum’s miners would profit from their activities — demonstrated a need to switch away from a consensus mechanism dependent on miners. Several mining consortiums threatened to overtake the network in 2021 to protest a hard fork that was against their interests, and that may be why the Merge is happening sooner than later.

Jurica: Finally, what can an average investor and HODLer do to prepare for such an event?

Mark: HODL tight. No one knows what will happen when the Merge is finally completed, but multiple test networks have successfully attempted dry runs for months. The Ethereum Foundation doesn’t appear to be an organization that would green-light the Merge without confidence in its execution.

Users who want to HODL long term and begin staking tokens to help secure the network and earn rewards can start by exchanging their ETH for staked ETH through Lido Finance. Lido has already accumulated billions of dollars’ worth of ETH for staking, and the project makes it possible for anyone to participate in staking, even if they lack the minimum amount of ETH to become a validator.

When Ethereum’s PoS mechanism goes live, computer power will no longer be the source of the network's security nor the source of earning ETH rewards. Economic power will take over instead, and anyone who stakes their tokens to help secure Ethereum as a PoS chain will earn steady interest on their token deposits.

Jurica: Thank you, Mark, for sharing your insights with us.

There you have it!

The Ethereum Merge is a big, ambitious project with the potential to change crypto landscape as we know it.

While its success is not guaranteed, the community is confident and preparing for the event.

Best,

Jurica

About the Editor

A MarketWatch columnist since 2014, Jurica covers science, technology, privacy, security and futurism, earning him the title of top three contributors for three consecutive years. At Weiss since 2011, he manages social media content and contributes regularly to Weiss Crypto Alert.

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