Right now, Ethereum (ETH -0.15%) is getting a lot of attention for the Merge, which is scheduled to take place on September 19. If this much-anticipated technological upgrade goes through as planned, it will be a groundbreaking development for the Ethereum blockchain that understandably has a lot of crypto enthusiasts very excited. It's for good reason that investors are piling into Ethereum ahead of the Merge.
However, we have been hearing about Ethereum's Merge for so long, and there have been so many delays along the way, that it's not out of the realm of possibility that it never takes place. One way to think about the Merge is in terms of three different scenarios: a baseline scenario, a best-case scenario, and a worst-case scenario. Each of these represents a potential path for Ethereum after the Merge.
The baseline scenario assumes that the Merge happens as planned on the promised date of September 19. According to everything we've been hearing, this seems highly likely. Right now, there is the Ethereum Mainnet (which is proof-of-work) and the new Beacon Chain (which is proof-of-stake). On September 19, these two chains will merge, and Ethereum will become a proof-of-stake blockchain. At that time, the Ethereum blockchain will become faster, more scalable, and more efficient. That's why investors are so enthusiastic about the Merge: It really is a technological tour de force.
Investors will likely "buy the rumor, sell the news." In other words, they will buy Ethereum heading into the Merge, wait for the price to increase, and then begin taking profits after the Merge actually takes place. This is what happens in the stock market all the time when investors are waiting on key events, and it's especially likely if we start to hear that the brand-new proof-of-stake blockchain is experiencing problems. After all, Ethereum will still not be fully complete at the time of the Merge. As Ethereum co-founder Vitalik Buterin suggested recently, Ethereum will only be "55% complete." There will still be a lot more work to do, especially in terms of a projected months-long cleanup period.
In a best-case scenario, the Merge happens exactly as promised and on time, and there are no problems migrating to a full proof-of-stake blockchain. Along the way, the tech upgrade will likely earn plaudits from crypto skeptics, who have long complained that Ethereum suffers from problems related to throughput capacity, transaction fees, and overall efficiency.
The good news is that Ethereum's Vitalik Buterin seems to be preparing the world for this best-case scenario. At the recent Ethereum developers conference in Paris, he announced that the Merge would be followed by the Surge, Verge, Purge, and Splurge. In the Surge, for example, Ethereum's value would surge as radically new scalability solutions become available for the blockchain. During the Verge and Purge, even more efficiencies would become available. And the Splurge? Well, as Buterin describes it, that's for "the other fun stuff." It all sounds very exciting, and if the Surge, Verge, Purge, and Splurge pick up traction with investors, it could propel ETH to a new round of all-time highs.
The worst-case scenario is the scenario that nobody wants to think about. Under time pressure to complete the Merge, Ethereum developers somehow get it wrong, resulting in all kinds of technical problems such as competing blockchains and missing blocks. This will result in a protracted delay of the Merge. If this scenario happens, it might cause an immediate downward spike in the price of ETH. And some warn that a botched Merge could infect the entire crypto market, casting doubt on all other blockchain projects built on top of Ethereum. In this scenario, investors would likely dump ETH, looking for new opportunities with rival Layer 1 blockchains such as Solana (CRYPTO: SOL) or Avalanche (CRYPTO: AVAX).
Which scenario will prevail?
There is an old adage in the world of business: "Hope for the best, plan for the worst." This is also true for the Merge. We can all hope for the best, but that does not mean it will happen. If you are thinking about buying Ethereum in 2022, it's worth thinking through each of these scenarios in order to make the best investment decision.