FX.co ★ What you need to know about the Ethereum Merge update and how it will affect the crypto market

Now the crypto community is actively discussing two upcoming events that may affect the volatility of the digital asset market: the Ethereum Merge update and US inflation data, which will be released on September 13.

And if the impact of the CPI report has been repeatedly discussed, today, Friday, I propose to figure out what Merge is and why it is important for the market, with the help of experts writing for Reuters.

What crypto traders need to know about Ethereum Merge?

Ethereum, the blockchain behind the world's second-largest crypto token, Ethereum, is about to undergo a major software upgrade. It promises to reduce the amount of energy needed to create new coins and complete transactions.

The Ethereum blockchain should merge with a separate blockchain, radically changing the way transactions are processed and new Ethereum tokens are created.

Known as "proof of stake," the new system will cut the power consumption of the Ethereum blockchain by 99.9%, according to the developers. Most blockchains, including Bitcoin, consume large amounts of energy, drawing criticism from some investors and environmentalists.

The Ethereum Foundation, a well-known non-profit organization that claims to support Ethereum, says the upgrade will pave the way for further blockchain upgrades that will facilitate cheaper transactions.

High costs and slow transaction times are currently the two main problems that users of the Ethereum network face.

When will the Ethereum Merge take place?

The expected merge will happen very soon. It is planned to be completed between September 10 and 20, although the exact dates are unknown. Independent estimates point to September 15 as the likely date.

Major crypto exchanges, including Coinbase Global and Binance, have said they will suspend deposits and withdrawals of Ethereum during the Ethereum Merge. According to them, users will not need to do anything with their funds or digital wallets as part of the upgrade.

Why is the Ethereum Merge update important?

Ethereum supporters say the merger is a monumental moment for the $1 trillion crypto sector.

Proponents believe that Merge will make Ethereum more profitable than its main competitor Bitcoin, the most popular cryptocurrency in the world, in terms of price and usability. This could lead to more widespread use of Ethereum applications.

Investors are betting that this change will be significant for the price of Ethereum, which has risen more than 50% since the end of June compared to a slight decline in the price of Bitcoin.

Features of the new blockchain

There are different ways to verify transactions on the blockchain, the software behind most cryptocurrencies. In the "proof of work" system currently used by Ethereum, new transactions are verified by cryptocurrency miners.

Miners use powerful computers that solve complex mathematical problems and update the blockchain by earning new crypto tokens. While this makes blockchain entries secure, it is very energy intensive.

In a "proof of stake" system, Ethereum holders will lock up a certain number of their coins in order to verify new entries on the blockchain, earning new coins on top of their "mortgaged" cryptocurrency.

What problems lie in wait for Proof-of-Stake?

While Ethereum developers say that the Proof-of-Stake model is hacker-proof, others say that criminals can attack the blockchain within the new system.

If one organization accumulates most of the ether staked to verify new transactions, it can change the blockchain and steal the tokens.

Cryptocurrency experts also state that there is a risk that technical glitches could corrupt Merge and that scammers could take advantage of the confusion to steal tokens.

It could also make it easier for developers to build programs on the Ethereum network, potentially speeding up adoption.

However, these updates will likely be months, if not years away.