‘The Merge’ is one of the biggest events in blockchain history and it’s happening this week. ‘The Merge’ describes how the Ethereum blockchain will move from a Proof-of-Work to a Proof-of-Stake consensus mechanism. The main impact coming will be reducing Ethereum’s energy consumption by 99%. The energy expenditure of Ethereum, and other blockchains, is one of the most often cited criticisms against the technology.
‘The Merge’ has been years in the making and if pulled off successfully, it will be a significant move to scale blockchain infrastructure and reduce energy. And perhaps, the Merge also makes it easier for skeptics, potential users, and businesses to start getting involved with Web3 and NFTs.
What is the Merge?
‘The Merge’ is a shift in the way transactions are validated on the Ethereum network. The current Ethereum mainnet will merge with the Beacon Chain proof-of-stake system. Previously, Ethereum has used a Proof-of-Work consensus mechanism, meaning that each new block on the blockchain is validated by ‘mining’ different computers competing to solve mathematical equations. This requires a lot of energy and is the source of the widespread complaints about the environmental harms of blockchains. Proof-of-Stake picks out validators based on the “stake” they have in the Ethereum blockchain.
As described on the Ethereum Foundation’s website, ‘The Merge’ is described using a spaceship analogy. “Imagine Ethereum is a spaceship that isn't quite ready for an interstellar voyage. With the Beacon Chain, the community has built a new engine and a hardened hull. After significant testing, it's almost time to hot-swap the new engine for the old mid-flight. This will merge the new, more efficient engine into the existing ship, ready to put in some serious lightyears and take on the universe.”
The Impact of the Merge
Ethereum is the underlying infrastructure of NFTs and many many parts of the broader Web3 ecosystem. The biggest impact coming from the Merge is that moving from Proof-of-Work to Proof-of-Stake will reduce Ethereum’s energy emissions by 99%. There are also many ancillary benefits that should also help grow Ethereum if the blockchain is more environmentally friendly. We discussed some of these in a previous podcast with Josh Doner from TracerDAO. The Merge is only one out of many new upgrades planned for Ethereum to improve transaction speed and lower ‘gas’ transaction fees.
With a successful Merge decreasing the environmental impact and further improvements planned ahead, this could make Ethereum a more attractive investment for institutional investors. Many companies and people have specifically stayed away from Ethereum by pointing to the blockchain’s carbon footprint. We may see more widespread adoption of Ethereum and NFT technology from people who previously objected on the grounds of environmental impact.
What happens after the Merge?
While the benefits of the Merge seem clear, there are still some concerns worth addressing. Some say that a smaller number of Ethereum holders will have more control based on their overall ‘stake’ in the network. Some say that makes power more concentrated and thus potentially more susceptible to attack, while others say the smaller group of control will help ensure security. Some people believe it is more secure to have a proof-of-work consensus mechanism and also like the current system where they receive block rewards.
Chinese miner Chandler Guo is planning to fork Ethereum and create ETHPOW, a new Ethereum Proof-of-Work blockchain. This brings up the potential of duplicate NFTs. If you go to an NFT marketplace that supports ETHPOW, you could see a version of your NFT from the main Ethereum blockchain and the ETHPOW blockchain. This could cause confusion for buyers or sellers.
What happens to all of your NFTs that have been minted on Ethereum?
The majority of all NFTs have been minted on the Ethereum blockchain. And regardless of what happens during the Merge, your NFTs will still be in your wallet and function normally across all different marketplaces. You personally don’t have to do anything.
You should be aware of scams taking place during this time period, however. It’s possible that scammers will send messages to people asking them to send ETH to a wallet address in order to “upgrade to ETH2.”
Putting that aside, barring any unexpected technical issues, the Merge should happen smoothly and without incident.
The Future of Ethereum
While Ethereum is still the number one blockchain for NFTs, many other blockchains like Solana and Flow are focused on building infrastructure specifically for NFTs and often position themselves as Ethereum competitors. There are also Layer 2 blockchain scaling solutions that sit on top of Ethereum like Polygon, Arbitrum and Optimism.
The Merge is expected to be complete sometime around September 15 and should really create a better world for everyone. This will make NFTs significantly more environmentally friendly and could become a major catalyst to grow not only the NFT market, but the broader Web3 ecosystem.