Ethereum 2, AKA “The Merge,” Succeeds in Testnet

After years of development, the Ethereum 2 Proof of Stake ("The Merge") change was successfully completed in a testnet.

Ethereum 2, AKA “The Merge,” Succeeds in Testnet
Ethereum Layer 2 Changes

After years of waiting, ETH 2.0 is finally here–sort of. Ethereum developers launch “testnets,” basically copies of the Ethereum blockchain, to test new features. For the first time Ethereum developers tested, and successfully merged, the Ethereum upgrade to Proof of Stake. They’re now calling this “The Merge” instead of ETH 2.0.

Why Move to Proof of Stake?

Ethereum (ETH) was the first cryptocurrency to handle complex logic via smart contracts, and that spawned much of web3–NFTs, DeFi, gaming, etc.  Being first isn’t easy though, ETH has a lot of problems that other blockchains have been able to avoid by learning from Ethereum’s mistakes.

The Ethereum Foundation is aware of these problems, and they’re working on them. Here’s what’s on their roadmap:

  • The efficiency of their blockchain, specifically that their security runs off of Proof of Work, which is extremely energy demanding
  • Scalability, including volume and cost of transactions, which has recently seen a dip between the success of Layer 2s and drop in NFT demand
  • Decentralization, which is a concern because it becomes more difficult to run a node as the network grows

These changes are coming in a few waves, each with their own catchy name (they all rhyme), but the most exciting one for investors just succeeded. The Merge is Ethereum’s move to Proof of Stake, from its current Proof of Work consensus algorithm.

Why are Investors Excited?

The move to Proof of Stake means you can get paid for holding Ethereum.  Profits Ethereum miners were making during Proof of Work will be going to investors instead–and these profits aren’t small. Estimates for returns range from 10% to over 25% a year. Many expect demand, and therefore price, to shoot up when holding ETH turns into a profitable practice.

Beyond the increased payout, Ethereum deployed a change last year which started burning ETH. Some days, more ETH is burned than is made, and post Merge that’s expected to increase. As the supply of ETH starts consistently decreasing, prices are expected to increase. So far, $5.5B in ETH has been burned.

The current date for the cutover to Proof of Stake is June 2022.  While this date has been pushed back a few times, Ethereum developers are actively saying they don’t think the date will change.