Ethereum is about to get a makeover, reports Bloomberg. The popular crypto network that runs Ether, the world’s second-most-valuable digital currency, could morph as early as 14 September into a configuration that shakes up the entire crypto universe.

The long-anticipated software change, “the Merge” to crypto fans worldwide, will lower Ethereum’s energy use by 99%, silencing critics who dislike the blockchain for its electricity consumption—enough to power Finland for a year by one estimate.

But for investors, the advantage is that Ether post-Merge will resemble more of a traditional financial asset that pays interest, like a bond or a certificate of deposit. That could entice hedge funds, asset managers, and wealthy individuals who’ve stayed on the crypto sidelines so far. The new software will also make possible upgrades that promise to speed transactions and lower fees, another hook that could lure investors. Some enthusiasts even predict the changes, taken together, could result in Ether leapfrogging Bitcoin in value. Bitcoin, the most popular token, has a market value that’s almost twice that of Ether.

All this just from a software update? Enthusiasts say yes, based on the fundamental shift in the way Ethereum works and behaves.

Ethereum’s new process will rely instead on what’s called proof of stake. It consumes very little power, because it doesn’t depend on miners. It does require entities called validators to put some skin in the game in the form of Ether coins. Staking, or putting coins in the pot, gives large Ether owners the right to add a block of transactions to the ledger; they’re rewarded with new Ether when they do so. All Ether tokens will now pay interest when placed into staking wallets. The software upgrade is called the Merge because the existing Ethereum blockchain will combine with a parallel network that’s been running for almost two years to test the proof-of-stake concept.

“I think that Ethereum’s merge fundamentally changes the asset,” says Jack Neureuter, research analyst at Fidelity Digital Assets, a unit of Fidelity Investments Inc. that plans to offer custody and trading in Ether later this year. “It fundamentally changes the investment case around it.”

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June 2024