3 Big Things the Merge Will Change About Ethereum
At press time, estimates are that Ethereum’s Merge, or the transition from proof-of-work to proof-of-stake-based transaction validation and settlement, will happen around 1 a.m. ET, or 5 a.m. UTC, on Sept. 15. It’s probably the most significant piece of crypto news since the collapse of Three Arrows Capital in June.
The Merge is, thankfully, much more positive. If you’re looking for a fundamental explainer or some last-second insights into how to trade the Merge, we’ve got you. But my job is the big picture, so here are the three most important things the Merge will change – and the one important thing it will not.
Lower fees? No.
The most important thing the Merge WON’T accomplish is reducing transaction fees on Ethereum. It’s certainly what many users would have wished for, and lower fees may eventually be enabled by infrastructure changes made in the Merge. But it won’t happen immediately.
That means, above all, there’s still going to be a serious place in the crypto world for alternate layer 1 blockchains like Solana and Near, as well as for layer 2s like Optimism and Polygon, which save user’s fees by “rolling up” batches of transactions to post to Ethereum.
Somewhat ironically, Ethereum fees have actually jumped by around 25% to an average of over $3 per transaction since Tuesday, likely in part thanks to traders and holders repositioning for the Merge. Fees are still quite low historically, but if you’re reading this earlyish Wednesday take care of your moves soon because those fees are likely to rise further as the day goes on.
The ecological premium
By removing computationally intensive proof-of-work mining from Ethereum, the Merge is expected to reduce the network’s overall energy consumption by more than 99%. For at least five years, the ecological impact of proof-of-work mining has been a major headwind for blockchain adoption in general, and the transition has at least two specific catalytic implications for Ethereum.
First, as a recent Bank of America report argued, some institutions or other investors who were reluctant or unable to invest in proof-of-work systems will now be free to stake Ethereum. That’s not necessarily going to be an instant sea change given the bear market but could have huge upside implications for crypto’s next bull cycle.
Second, and I think more important, the shift to proof-of-stake totally transforms the playing field for non-fungible tokens (NFT). As silly as things got during the last bull cycle, NFTs are one of the clearest cases of real, end-user product-market fit on Ethereum, and I’m extremely bullish on the concept long term.
But a lot of artists and consumers seem to have a general antipathy to blockchains tied up in environmental concerns. That’s not their only gripe, but removing that issue will be huge for the appeal of digital art on Ethereum in the long term.
