by Alex Broudy, Technical & Financial Writer
Sep 9, 2022
Last week, Ethereum developers completed the last step of a long-awaited upgrade event called “The Merge.” This upgrade is intended to convert Ethereum’s consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS). What does this mean for existing Ether (ETH) investors, and what should Ethereum-based security token holders know ahead of The Merge?
Blockchain technology establishes agreement between different parties using what is known as a consensus mechanism. Consensus mechanisms make sure that transactions are legitimate without using a centralized authority to do so. The two most commonly used consensus mechanisms are PoW and PoS.
Generally, PoW uses energy-intensive computers known as “miners” to secure network activity, execute transactions, and verify their authenticity in a decentralized manner. To do this, miners around the world use specialized computers to solve cryptographic puzzles which validate transactions without any centralized supervision. The winning miner is rewarded by the network to incentivize continued participation.
PoS is similar to PoW, but in this case, a random validator (for example, someone who staked 32 ETH as collateral), gets selected to add the latest batch of transactions to the blockchain. Validators earn some ETH in exchange for staking, similar to miners receiving a mining reward for achieving consensus.
The Merge’s goal is to convert Ethereum’s current PoW consensus mechanism into PoS. By eliminating miners from the act of consensus, PoS drastically lowers energy requirements and the cost of maintaining network security overall. As a result, PoS has the potential to be more scalable, secure, and sustainable than PoW.
Now that you know the basics, let’s review some of the most common questions investors are asking ahead of The Merge.
1) Question: When will The Merge happen?
2) Question: What does the Ethereum Merge mean for investors whose digital asset securities were tokenized on Ethereum?
3) Question: What do ETH investors need to do prior to The Merge?
4) Question: Will the ticker symbol for Ether change?
5) Question: What should prospective investors consider before and afterwards?
6) Question: What are the immediate benefits of The Merge?
7) Question: What should businesses and issuers using Ethereum know about The Merge?
8) Question: Can I stake ETH and become a validator?
9) Question: Is The Merge the final step in Ethereum’s upgrade?
All emerging technologies come with market, liquidity, and regulatory risks, including Ethereum. For existing investors, adjusting portfolios ahead of The Merge may risk losing out on upside potential. For prospective investors, sitting on the sidelines until The Merge is complete may present a potential buying opportunity if existing investors sell.
For businesses and issuers looking to use Ethereum, The Merge has the potential to help the industry mature overall. Once The Merge is complete, businesses will have a better sense of how Ethereum operates as a PoS blockchain and can decide whether to build or buy.
As with all investments, having the most up-to-date information can help make informed decisions. To learn more about investing in digital assets like ETH, subscribe for updates below.
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