What does The Merge mean for Ethereum and other blockchains?

Ethereum has evolved to become the most important blockchain, which not only holds more than 17% of the global crypto market cap, but also hosts thousands of applications in a diverse range through its smart contract capabilities. 

As the Ethereum has experienced a high rate of adoption, problems such as high energy usage, low transaction throughput and high transaction costs become more and more pressing, threatening the long term sustainability and scalability of the network. Nonetheless, Ethereum remains the most adopted blockchain for applications, way ahead of many other alternative blockchains which were created to improve on it.

To address these issues and make the Ethereum future proof, founder Vitalik Buterin conceived Ethereum 2.0, a major revamp of the original blockchain network. Through the introduction of a new network protocol (Proof of Stake – as opposed to the original Proof of Work), network decentralisation through Sharding, and expansion of the development environment by Ethereum Web Assembly (eWASM), Vitalik envisioned Ethereum 2.0 to make major improvements in the overall sustainability, security, scalability, and accessibility of network. 

However, introducing these new aspects concurrently on a network with thousands of running applications proved to be overly ambitious, especially given the irreversible nature of network protocol change, leading to multiple delays and a change of plans.

As such, Ethereum’s developers decided to focus first on The Merge, a significant shift in network protocol from Proof of Work to Proof of Stake. As of end of July 2022, the Merge is planned to occur in Sept-Oct of 2022.

According to Ethereum’s developers, post-merge Ethereum will be “55% complete” in terms of overall network evolution. 

Firstly, it is important to acknowledge that Ethereum has no date in the near future for the completion of Ethereum 2.0. As such, despite possessing a first-mover advantage, there is no guarantee that Ethereum will maintain their competitiveness. Other blockchains such as Solana and Cardona have, and will continue to, improve upon the issues of Ethereum’s blockchain. 

Despite possessing a trustworthy and compelling leader (Buterin was the first to identify the applications of blockchain technology beyond crypto) investors must differentiate ideas from implementation, and observe how these market forces may affect future adoption. The key will be how well these planned revamps are executed. 

Secondly, if and once The Merge is successfully completed, Web3 innovators and developers are likely to discover further use cases on top of the Ethereum’s blockchain. With the removal of limitations on transaction speed and volume, further DeFi, GameFi, and dApp opportunities will emerge. 

Moreover, investors should contemplate the implications of Sharding. No blockchain has implemented this before, introducing both higher risks and great growth potential for Ethereum’s blockchain and the applications it hosts. Ethereum’s developers have historically had the best ideas, and is likely to remain a heavyweight in the competition, as long as their implementation keep up with their ideas. 

If Ethereum’s future development plans come into fruition, it is poised to  become the backbone of the future Web3 ecosystem, serving as the primary blockchain for more exciting decentralised applications to come.

You can find more interesting insights about Ethereum and The Merge in our latest report ‘The future of Ethereum‘. Get your complimentary copy here.