On Tuesday, the “merger” that has been planned for years will take place on the blockchain platform Ethereum. The update has been long awaited in the crypto scene, but it also carries great risks.
It is unclear if everything is going smoothly. If everything works according to plan, ether can benefit significantly – on the other hand, if there are difficulties, the price can collapse.
What is really behind the merger? What should investors consider now? We have answered the most important questions for you. For example, keep in mind that Ethereum trading will be suspended for a few hours during the transition.
Those who invest their money in cryptocurrencies have had little reason to be happy in the past few months. The price of bitcoin continues to fall below $20,000. Ether, the cryptocurrency of the Ethereum blockchain, is currently only $1,500 after $4,000 last year.
But that could soon change. Because on Tuesday there is a major technical update – called “The Merge” – for the second most important cryptocurrency Ethereum. This is causing a stir in the crypto scene, sparking fear and hope in equal measure. But where does the tension come from?
It is completely unclear whether everything will go smoothly – and depending on it, the crypto world could revolutionize or suffer another major loss of confidence. We clarify for you the most important questions that investors currently have about the “merger”.
1. What is The Merge anyway?
Ethereum has been planning the merger for several years. Basically, it is about significantly reducing the energy consumption of blockchain technology. Cryptocurrencies are criticized for consuming terrible amounts of energy. Ethereum wants to change that by switching from the Proof-of-Work (PoW) consensus model to the Proof-of-Stake (PoS). According to the Ethereum Foundation, this platform change can save about 99.95 percent of energy consumption.
These are very technical terms, but do not mean anything other than that the so-called “mining” – which is very energy-intensive – of ether coins is abolished. In addition, transaction fees will also decrease as the throughput of the new network will increase significantly. Ethereum was often criticized for the fact that the transactions cost too much, which makes it inefficient.
The update should not only make Ethereum more environmentally friendly, but also faster. The first stage of the merger begins on Tuesday. The entire update could be finished as early as mid-September.
2. How will this affect the Ether price and should you jump in now?
It is unclear whether the merger will actually be a success – because it is by no means certain. Some experts fear that the complex transition could fail technically. “The conversion of the Ethereum blockchain is a big technological challenge,” Peter Grosskopf, co-founder of Solarisbank, told the German Press Agency, comparing the situation to converting a diesel car to an electric engine while driving.
Convinced supporters of Ethereum, on the other hand, assume that the merger will succeed and that new confidence will be created in the crypto market. Toby Lewis, cryptoanalyst at Novum Insights, is sure in an interview with “Bloomberg” that the transition will in any case be a “very bumpy ride”. It is therefore difficult to predict whether the merger will be successful and, if so, how big the problems will be.
Depending on this, the course will also develop. If all goes well, many investors may have renewed confidence in Ethereum’s future viability, prompting them to invest or re-invest. Then the price should also develop accordingly.
In the event of a major collapse, the exact opposite would happen; Investors are fleeing to other cryptocurrencies or even from the crypto market altogether. As a result, prices would also fall. However, how severe is difficult to predict and will depend on the scale and extent of the potential difficulties. Basically, the current purchase of Ether is more of a bet on the success of the merger in the coming days.
3. How could Ether develop in the long term as a result?
If the merger is successful and no major problems arise in the future, ether may also rise in price due to the trust gained and the falling costs. In addition, experts expect more institutional investors – such as Blackrock in the past few days – to enter crypto trading. The then increasing demand should also drive prices up in the long term. In the opposite case, however, precisely the institutional investors will also refrain if problems arise and Ethereum’s future viability is questioned.
It will also be crucial how well-established crypto investors will behave after the merger. Ethereum promises more security with the update. But some users fear this could make the platform less decentralized and allow individual large investors to gain more power. For these reasons, old users leave on a large scale and new customers stay away, the falling demand will also have a negative impact on prices.
4. What does it mean for you if you already own Ether?
If you own ether, want to keep it long-term and don’t want to buy or sell it, you don’t have to worry about it initially. However, Ether trading, deposits and withdrawals will be suspended for a few hours during the transition as a safety measure on platforms such as Coinbase or Bison.
5. What impact does this have on Bitcoin and other cryptocurrencies
The entrepreneur Grosskopf expects that the successful implementation of the mammoth project will have a positive effect on the entire industry. “The conversion results in radical energy savings.” This makes the second largest blockchain more attractive to investors who choose their investments according to sustainability criteria (ESG).
It is therefore even possible that Ethereum initially pulls away from other cryptocurrencies if it is very successful. In the past few weeks, ether had risen from around $1,000 to $2,000 at times in the run-up to the merger, while bitcoin was unable to capitalize and failed to make it above $25,000.
Nevertheless, the entire crypto industry should benefit from the implementation – should everything work. The merger, which has been touted for years, is seen as a benchmark for crypto’s future viability. In case of failure, many investors may initially switch to other cryptocurrencies, but in the long term, this will result in huge damage to the reputation of the entire scene.
6. Why are experts now warning of increased fraud attempts?
The Bison exchange platform of the Stuttgart stock exchange is currently warning its customers about possible fraudsters who take advantage of the situation and, for example, offer coins for sale that do not even exist. Because the protocols are moving to a new platform, older coins are left on the old one for now. However, these no longer have any value, but can still be sold by scammers. There can also be major hacking attacks, as was the case with the last major Ethereum update in 2016.
With material from DPA.