How Will The Ethereum Merge Date Impact Investors?

A Simple Guide to the Upcoming Upgrade

Originally published September 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?

Merging from Proof-of-Work to Proof-of-Stake

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.

Questions and Answers

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?

• Answer: Ethereum’s transition to PoS is set to occur on September 15, 2022, give or take a day. The reason that this date is approximated is because it corresponds with a mining difficulty threshold that must be reached, instead of a projected block height or predetermined conversion date.

2) Question: What does the Ethereum Merge mean for investors whose digital asset securities were tokenized on Ethereum?

• Answer: Digital asset security investors whose assets were tokenized using Ethereum are not expected to experience any impact from The Merge. Digital asset security tokens issued using Ethereum will continue to operate as initially intended. Existing investors do not need to take any action before or after The Merge.

3) Question: What do ETH investors need to do prior to The Merge?

• Answer: Existing investors do not need to take any action on their end. If you hold any tokens on Securitize that are based on the Ethereum blockchain there is no need to take any additional steps at this time. The value of ETH may be volatile approaching The Merge. Long-term investors should keep this in mind ahead of mid-September.

4) Question: Will the ticker symbol for Ether change?

• Answer: The ETH ticker symbol will not change and investors will not need to exchange existing ETH for any token called ETH2. That token does not exist. While there are similar sounding ticker symbols, ETH will continue to represent Ether and the Ethereum blockchain.

5) Question: What should prospective investors consider before and afterwards?

• Answer: Prospective investors will not need to adjust the way they invest in ETH or Ethereum-based security tokens before or after The Merge. Changes will not be obvious to the average investor. Frontend applications are not expected to be impacted by The Merge.

6) Question: What are the immediate benefits of The Merge?

• Answer: The near-term benefits of The Merge are that Ethereum should be more scalable, more secure, and more sustainable. The Merge is anticipated to reduce energy consumption by nearly 99.95%.

7) Question: What should businesses and issuers using Ethereum know about The Merge?

• Answer: Decentralized applications built on Ethereum are expected to operate as intended throughout The Merge. Businesses tokenizing on Ethereum post-Merge can expect a more scalable, secure, and sustainable blockchain.

8) Question: Can I stake ETH and become a validator?

• Answer: Staking 32 ETH enables Ethereum users to become validators. Staked ETH will not be immediately available for withdrawal when The Merge is over.

9) Question: Is The Merge the final step in Ethereum’s upgrade?

• Answer: The vision for Ethereum will not be fully complete until all staked ETH becomes withdrawable sometime in 2023 or 2024, when sharding is anticipated to begin. Sharding is a way of scaling transaction volume. Sharding enables Ethereum to potentially reach 100,000+ transactions per second.

After The Merge

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 here.