Cryptocurrency giant Ethereum's (ETH -1.11%) big moment lies just ahead. A key part of its upgrade may happen on or around Sept. 15. It's called "the merge." It's set to help solve Ethereum's biggest problems: High energy consumption, network congestion, and speed. It will also keep the coin supply down. That supports the idea of a higher price for the cryptocurrency.
Ethereum's been preparing for the merge for quite some time. And developers even delayed it as they've gone through the testing process. It looks set to launch this time around, though. Now, the big question is: Should you buy Ethereum before this big event? Let's find out.
Transitioning to proof of stake
First, let's take a closer look at what the merge is all about. Until this point, Ethereum has used the proof-of-work method to validate transactions on the network. This involves many computer nodes competing to solve complex mathematical puzzles. The winner gets to add a new block of data to the blockchain.
That's why Ethereum's energy use is so high. Today, Ethereum uses as much energy per year as the Netherlands.
The merge involves Ethereum switching to another method. It's called proof of stake. Here, those with the biggest stake in the cryptocurrency may win the right to validate transactions. As a result, Ethereum will cut its energy consumption by more than 99%.
Ethereum's first step in this process was launching the Beacon chain. This chain uses proof of stake and has been able to test the new system. The merge involves folding this chain into the mainnet. And from here on in, Ethereum will use proof of stake.
This move won't solve the congestion and speed problems right away. But the merge is a step to getting there. We can count on less congestion, lower gas fees, and higher speed after the launch of sharding. That's set for next year.
Sharding will involve slicing up the database to spread out the workload. As a result, Ethereum might be able to handle 100,000 transactions per second. So, even after the merge, there's a lot more to come for Ethereum.
A path to higher value
Finally, the merge will offer one more advantage. It will cut the coin supply. A drop in the issuance rate should reduce Ethereum's supply by about 5% annually, according to IntoTheBlock. Less supply usually helps boost price. So this could be a path to higher value over time.
All of this sounds great. You may be ready to invest in Ethereum right this second. But it's important to keep in mind a few points. First, the merge could encounter a glitch -- or the resulting merged Ethereum may encounter a problem at some point down the road. Any such event could weigh heavily on Ethereum's price.
It's also possible all of the good news is priced in right now. Ethereum has gained nearly 50% since its low in July. That means even if all goes well during the merge, Ethereum may not climb significantly.
And, as I always say, cryptocurrency in general is high-risk. That's because it's a newish area and we don't yet know for sure what the landscape will look like a few years from now -- even if things seem promising. So don't invest more than you can afford to lose.
With all of this in mind, though, now looks like a good time to get in on the Ethereum story. As the world's second-largest cryptocurrency, it's already a major player. And it's on the way to solving its biggest problems. If all goes well during the rest of the upgrade, Ethereum could be one of the future's cryptocurrency winners.
