Over the past five years, Ethereum (ETH +0.31%) has produced a monster return of 526% (as of this writing), crushing the S&P 500 and even Bitcoin (BTC 0.60%) during the same period. But close followers of the cryptocurrency market know that Ethereum has been stymied by its inability to scale well, resulting in exorbitant fees when demand for the network is high. This is undoubtedly getting in the way of the platform's growth.
Luckily, Ethereum developers have long been working on something called the Merge, which will transition the network to an environmentally friendly and scalable proof-of-stake (PoS) consensus mechanism. Vitalik Buterin, one of Ethereum's founders, has said that Sept. 15 could be the day that the Merge will happen, after which ether (ETH), the Ethereum blockchain's native currency, could soar.
So is now the right time to buy Ethereum, or should investors wait until after the Merge happens? Let's take a closer look.
CRYPTO: ETH
Key Data Points
The promise of the Merge
Throughout its history, Ethereum, like Bitcoin, has operated on what is known as a proof-of-work (PoW) consensus model. This means that large amounts of energy and computing power are needed to solve math problems to validate and add transactions to the blockchain. This process is slow, expensive, and doesn't allow for a lot of transaction throughput.
As a result, the Merge, an event that will connect the Beacon Chain PoS network with Ethereum's current PoW model, is planned for completion in mid-September. It should be like swapping out Ethereum's current engine for a new and improved one. While many Ethereum supporters have long waited for this to happen, there have been multiple delays in implementing The Merge. Furthermore, there is no guarantee this will bring about huge changes.
In fact, according to the official Ethereum website, there are some major misconceptions floating around. In particular, transaction fees and speeds aren't actually expected to improve, which would probably come as a shock to most people. The only thing The Merge brings about is a change in the consensus mechanism, not expansion of the network's capacity or throughput.
What's more, the Merge isn't the only change that's planned for the Ethereum blockchain. Over time, there will be more upgrades, called the Surge, Verge, Purge, and Splurge. These steps are all part of Ethereum's evolution, Buterin claims, but they do add risks that ETH token holders need to be aware of. Not only could these changes divide the community into those who support the moves and those who don't, but the possibility of faulty software could alter the functioning of the whole network.
Over the past month, Ethereum's price has skyrocketed 58%, compared to 16% for Bitcoin, a clear indicator that investors are optimistic about what's to come.
Investors should layer in
Ethereum's market capitalization is about $225 billion, making it the world's second-most-valuable cryptocurrency. Clearly, it was already a top digital asset before the Merge was on the horizon. The network was the first to introduce smart contracts, a feature that adds incredible functionality to the blockchain and opens up the potential for decentralized applications (dApps), particularly with decentralized finance protocols and non-fungible token marketplaces. And this innovation was certainly enough to catch the attention of investors from the beginning.
The Merge is definitely a promising event in Ethereum's history, but investors should avoid trying to trade around it. As with investing in stocks, I think the right approach here is to simply employ dollar-cost averaging, buying small sums over time to build a position in your portfolio. That is, of course, if you're bullish on crypto and Ethereum over the long term. It's never a good idea to try to time the market. Dollar-cost averaging is a good strategy, regardless of what happens in the next month or so with the arrival of the Merge.
Furthermore, the Merge has been delayed numerous times before, so I think it's probably best to avoid waiting for its arrival before buying. If you wait, you risk any possible gains that could be had while you sit on the sidelines. And ultimately, if we zoom out and keep our eyes on the big picture, it's clear that Ethereum's success (and price appreciation) depends on its potential to achieve wider adoption, something that the Merge can help accelerate.
