What Investors Should Know About Ethereum’s Upcoming Merge

Vitalik Buterin, the founder of Ethereum (CRYPTO: ETH), was aware all the way back in 2016 that an upgrade would be necessary to increase its transaction capacity and speeds.

Since 2016, there have been multiple announcements claiming that The Merge, as the update is known, would be completed. Unfortunately, each of those dates has been extended.

Now there might actually be an end in sight. Recently, an Ethereum core developer announced that his group believes an upgrade to the core network will arrive sometime in August.

Image source: Getty Images.

The Merge

Previously dubbed Ethereum 2.0, The Merge is expected to iron out most of the flaws that now are inherent in Ethereum. Most importantly, its consensus mechanism will transfer from proof of work to proof of stake. This move will make it more energy-efficient and should also make Ethereum’s high transaction fees a thing of the past. These high fees have plagued its network for quite some time now. When traffic is busy on the network, users pay exorbitant fees when completing transactions.

Additionally, a new process to improve speeds will be introduced. Sharding is a method to create various channels within the blockchain for transactions to be completed. Think of it as creating an additional lane on a highway. Traffic will be able to use these additional channels so that congestion is minimized.

Without this upgrade, Ethereum will continue to be slow and costly to use. Known as “gas,” these fees have been so outrageous that people have resorted to Layer 2 scaling solutions like Polygon (CRYPTO: POLY) to facilitate transactions. Even rival blockchain platforms like Solana (CRYPTO: SOL) have begun to rise in popularity because of their fast speeds and cheap costs.

The delay

It can be slightly discouraging to hear of yet another deadline being pushed back. Originally the plan was for this upgrade to be complete in June. Ethereum has definitely left its mark on crypto. But if deadlines continue to be missed, what should investors expect from the world’s first programmable blockchain?

If Ethereum continues to move the target, users of the network will likely abandon ship. One of the most important aspects of blockchains and cryptocurrencies is that they provide utility. These blockchains should serve a purpose that the world needs.

As of now, Ethereum provides a great service to cryptocurrencies. Without Ethereum, non-fungible tokens (NFTs) would likely not have seen the success that they have. Many tokens like Chainlink (CRYPTO: LINK) and Uniswap (CRYPTO: UNI) run on Ethereum’s blockchain. And most importantly, the concept of decentralized finance (DeFi) applications would never have grown without Ethereum’s programmable smart contracts.

Now or never

For Ethereum to retain value, this upgrade must take place sooner rather than later. Imagine if iPhones still ran on some of the first operating systems and continuously pushed back updates that users needed.

There is likely still time for Ethereum to make amends, but investors should be aware of its precarious position. It’s the second-largest cryptocurrency by market cap for good reason. The blockchain was originally one of a kind and has supported most of the innovation in crypto for the last few years.

But competitors have arrived. There are other options out there for users who need low fees and fast speeds. If this upgrade is delayed again, Ethereum developers will eventually flock to blockchains that offer more-appealing features.

For the time being, the jury is still out. If Ethereum can deliver by the end of summer, then investors should be optimistic that the blockchain will stick around for the long haul. But if another deadline is missed, then Ethereum could fade out like many other cryptocurrencies.

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RJ Fulton has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Chainlink, Ethereum, Polymath, and Solana. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.