Soaring from a low point of around $900 to $1,900, the price of ETH has made many investors waiting for a chance to buy in at $500 feeling remorseful. The price gain of ETH is inseparable from the Merge. As the Merge gets closer, the market has responded positively. To a certain extent, it can be said that the current market is a bull market brought by the Merge.
So, what exactly is the Merge? Why is this move so impactful? How will the Ethereum merge affect retail investors? How do we profit from the Merge and the consequent forks?
In response to these questions, BitKeep has launched “BitKeep Spotlight: Ethereum Merge and Fork” to answer questions and reveal opportunities through featured articles.
This is the first of this series: Explained: What do the Ethereum Merge and Fork entail?
1. What is the Merge?
“The Merge” is a major upgrade of Ethereum’s consensus mechanism, moving from PoW (Proof of Work) to PoS (Proof of Stake). It is called “Merge” because the process is to merge Ethereum’s Beacon Chain (consensus layer) with the existing chain (execution layer), discarding the PoW part of the execution layer.
2. Why the Merge?
To answer this question, we need to first answer the question of why does Ethereum choose to turned to PoS.
The Ethereum network is well known for its congestion and high gas fees. In order to improve the performance of Ethereum, Vitalik Buterin, one of the founders of Ethereum, proposed a sharding solution. But the sharding technology conflicts with the PoW mechanism, making the switch to PoS is an inevitable choice.
In Buterin’s view, PoS is a better blockchain security mechanism than PoW: With the same cost, PoS provides better security; PoS system is easier to recover after being attacked; and PoS is more decentralized than ASIC mining.
In addition, in the context of pursuing carbon neutrality, PoS can reduce power consumption by 99% compared to PoW, solving the energy waste and carbon emissions caused by the criticized cryptocurrency mining.
3. Why is the Merge getting spotlighted?
The Ethereum merge is arguably one of the most important events in the history of cryptocurrencies. For a large ecosystem and economy like Ethereum, a change in consensus mechanism is tantamount to changing the engine of a flying plane. Its importance is self-evident, and the risks involved are also huge, which is why the Merge has been delayed and tested repeatedly.
In addition, the Merge has attracted much attention because the change of the consensus mechanism will bring many changes to the blockchain ecology, such as the shrinking needs for and migration of miners and computing power, the decline of the ETH inflation rate, the rise of the staking ecology, and the potential Ethereum forks.
4. How will the Merge impact ETH price?
To tell the conclusion first: after ETH is shifted from a PoW mechanism to a PoS system, the inflation rate will drop so significantly that ETH may become deflationary. A decrease in supply may effectively support and boost the price of ETH.
Statistics show that the network generates ETH issues about 5,500,000 coins a year. However, since the London Hard Fork update on August 5, 2021, more than 2,500,000 coins have been destroyed in the past year. According to the Beacon Chain staking data, ETH is estimated to generate 600,000 new coins a year after the Merge, which means the annual inflation rate of ETH will drop to about -1.6%.
Take the Bitcoin halving as an analogy, ETH is like going through three halvings after the Merge.
5. When is the Merge?
Although the Merge has been repeatedly put off, all facts indicate that it’s finally happening in September! To be more specific, the Merge will happen on or around September 15, 2022.
On August 12, Vitalik Buterin twittered: The terminal total difficulty has been set. bordel.wtf predicts the Merge will happen around Sept. 15, though the exact date depends on hashrate.
The Ethereum Foundation also published an article saying that the parameters of the Merge of mainnets were agreed in the community call. But as it’s hard to set TTD based on proof of work, the exact time for the Merge is still unknown, which is expected to be September 15, 2022, with an error range of at most a week.
6. What is a fork in Ethereum?
For a blockchain, a hard fork is a normal update, which is usually planned in the roadmap. But sometimes, some hard forks do not follow the consensus. As a result, the community is split and multiple blockchains are created. For example, in 2016, ETH was split into two blockchains: Ethereum and Ethereum Classic because The DAO was hacked.
Recently, there has been a heated discussion in the community about the potential ETH forks. After the Merge is completed and ETH is shifted to a PoS mechanism, ETH miners will not be able to mine any more. Therefore, relevant interest groups are still trying to maintain the ETH PoW chain, thus there may generate many fork chains.
7. How will ETH fork impact the users?
For common users, ETH fork may not be a bad thing as they can receive fork coins. On August 17, BitKeep announced that it would support access to ETH fork chains and would launch new features for users to receive and trade fork coins conveniently.
8. How to profit from the Merge and fork of ETH?
For users, the most direct and profitable way to interact with this huge move is to get fork coins on the chain. As mentioned above, BitKeep will launch new features for users to receive and trade fork coins. But we must remind you that you should transfer your ETH or other ERC20 assets in the exchange or on other chains to ETH mainnet before the Merge.
Plus, you are welcome to follow BitKeep Blog and this series of “BitKeep Spotlight” for relevant articles and more detailed guides on how to get fork coins.