After years of delays and speculation, the Ethereum merger was successfully deleted around 7:45 AM UK Time on Thursday 15 September, finally transitioning the world’s largest cryptocurrency ecosystem from Proof-of-Work (PoW) to Proof-of-Stake (PoS).
With the landmark protocol upgrade, Ethereum is now over 99% more energy efficient and the foundations have been laid to make it significantly more scalable and cost-effective to run.
And we’re done!
Happy merging. This is a big moment for the Ethereum ecosystem. Everyone who helped bring about the merger should be very proud today.
— vitalik.eth (@VitalikButerin) September 15, 2022
The stakes were high for the $200 billion digital ecosystem.
With such a complex project being worked on by hundreds of developers, one small mistake could have resulted in the entire ecosystem being eclipsed.
Ultimately, there was nothing to worry about as only a single block was missed throughout the process.
I can’t say enough about all of the builders, researchers, coordinators and more who made this all possible.
It is an absolutely incredible feat to move a globally deployed blockchain to PoS without most end users even noticing or having to do anything.
Truly unbelievable. Cheers.
— eric.eth (@econoar) September 15, 2022
Anyone not watching the news would have barely noticed one of the biggest events in cryptocurrency history, with price action essentially staying the same and little changing in terms of transaction speeds or gas prices.
Lars Seir Christensen, Chairman of the Concordium Foundation and founder of Saxo Bank, commented on the event: “I wouldn’t call the merger a non-event, but the reality is that it doesn’t change much.
“Overall I don’t see it as a major benefit that will change the current negative market sentiment and there is significant downside risk if anything goes wrong.”
Christensen anticipates any potential upside move above $2,000 will face stiff resistance.
But even if little changes for investors in the short term, this does not apply to the miners.
Ethermine is closing up shop
While the benefits for users and developers will be huge, cryptocurrency miners are the biggest net losers in the move to PoS.
Powered by blockchain technology company Bitfly, Ethermine was once the world’s largest ETH miner. Ethermine has been made virtually obsolete as of today.
As of March 2016, Ethermine has mined over 12,400 Ethereum blocks and had a peak balance of more than $22 million.
Website visitors are now greeted with the following message: “After seven years of intensive research and development, Ethereum’s mining phase ended on September 15, 2022.
“As of now, it is no longer possible to mine ether on the Ethereum network using graphics cards (GPUs) or ASICs.
“As a result of this transition, the Ethermine Ethereum mining pool has switched to withdrawal-only mode.”
But not all miners are shutting down.
Even if their hardware is unsuitable for Bitcoin, there are many other cryptocurrencies that miners require, including Litecoin, Ethereum Classic, Ravencoin, Monero, Dogecoin, and more, although their rewards pale in comparison to ETH.
Over 50 million in ETH rewards were distributed to miners during the network’s PoW lifetime — that’s over $79 billion at today’s ETH prices (not counting ETH value at the reward date).
Will the news be sold?
In the run-up to The Merge, some, including myself, speculated whether investors were preparing to “sell the fact” after buying the news fairly robustly ahead of time.
But so far there has been little to no price action post-merger.
Joel Kruger, crypto strategist at digital asset exchange LMAX Digital, believes that risk was already priced in, “which could tip the risk balance lower in the coming sessions.”
Everything appears to have gone as expected, with little additional room to buy on the news, “exposing Ether to some selling on the fact,” Kruger surmised.
While the operational implications of the Ethereum merger cannot be underestimated, investors are likely busy with more important issues.
“The reality right now is that the merger has been overshadowed by developments in global markets, with crypto still betting more on risk sentiment and the Fed policy outlook than anything else.”
At the time of writing, ETH was changing hands at $1,590, down less than 3% from the week before.
New era of centralization?
Despite the clear benefits, not everyone is excited about Etherum’s new PoS consensus method.
Sure, the environmental benefits are great, as is the potential for scalability, but critics have been vocal about the dangers of centralization
Jason Soroko, chief technology officer at cybersecurity firm Sectigo, stated, “PoS is more energy efficient than PoW, but cryptocurrencies like Bitcoin that use PoW do so for reasons beyond sustainability.
“The argument for PoW is that it allows for more decentralized participation than PoS, where those who make the highest stakes are likely to have the most impact on cryptocurrency decisions.”
As can be seen in the chart below, over 75% of all network consensus is handled by just five pools, including some run by large companies like NASDAQ-listed Coinbase and global digital asset exchange Binance.
Even the disgraced Celsius Network has staked a large portion of ETH – source: beaconcha.in
But it’s a slightly misleading statistic considering each pool contains thousands of individual delegates.
In reality, there are currently over 425,000 active validators contributing to the Ethereum network consensus.
After the merger: what happens now?
The Merge was the first in a series of rhyming upgrades, with more planned for years to come including The wave, The edge, The purge and The Splurge.
The Surge will likely take place next year and in some ways could have an even bigger impact than The Merge.
We can get into the technical details another time, but the key takeaway is that The Surge ushers in a new era of significantly faster and cheaper Ethereum transactions.
It doesn’t look like The Merge will lead to that reflect (i.e. the day ETH overtakes BTC’s market cap), but who knows, maybe The Surge will.