The Merge is a technical upgrade that will shift Ethereum’s existing proof-of-work consensus mechanism to a proof-of-stake model. With this move, Ethereum aims to significantly cut its carbon footprint and lay the groundwork for future scalability upgrades.
According to its co-founder Vitalik Buterin in a Twitter post-Thursday, the blockchain network has completed the crypto world's largest and most ambitious software upgrade to date.
The Merge replaced power-hungry machines that were used to arrange network transactions with a more energy-efficient configuration that utilized stacks of Ether, the network's native coin, held in special, so-called staking wallets. As a consequence, Ethereum's energy usage will be reduced by 99%.
Such an upheaval has never been tried in crypto, never alone on Ethereum, which is home to about 3,500 active decentralized apps ranging from exchanges to games and processing billions of dollars in crypto. The Merge, which has been in the works for years, does not impact the end-user experience on Ethereum, but it is a critical stepping stone to additional enhancements that will make the network quicker and cheaper, potentially increasing its stature and usage.
The Merge also altered Ether's features, making it more analogous to yield-bearing securities. According to tracker Staking Rewards, Staked Ether will yield a return of roughly 5.2% following the Merge. When combined with a predicted net drop in Ether token supply soon after the upgrade, the coin should become more appealing to investors.
Ether more than fivefold in 2021, surpassing Bitcoin by a significant margin, thanks in part to confidence around the Merge. Since reaching record highs in November, both coins have faltered, with Ether down more than 50% this year.
If you’re holding ether, your funds will be safe during, before, and after The Merge. The asset will still appear as ETH in users’ wallets. Binance users, however, should prepare for a temporary pause on ETH and ERC-20 token deposits and withdrawals.
It is also possible that the Ethereum chain splits into two competing chains after The Merge, and a new token is created. In the case of a such fork, Binance will credit the Ethereum PoS chain with the “ETH” ticker. The forked token, on the other hand, will be distributed based on a snapshot of users’ ETH balance.
The Merge software upgrade is named after the existing Ethereum blockchain, which will be combined with a parallel network that has been functioning for over two years to test the proof-of-stake principle. Overall, the renovation has been in the works for nearly seven years.