Own ETH? 3 ways the 15 September Merge impacts you

Posted: 29 August 2022 7:35 pm
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The Ethereum Merge is on everybody’s crypto radar – find out what it’s about and how you can benefit.

Set to launch on 15 September, the Merge is a highly anticipated upgrade to the Ethereum blockchain. The Merge aims to minimize energy consumption and lower inflation, which could lead to good things for Ethereum holders.

Mining vs staking

You’ve probably heard about blockchains being decentralized. But did you ever wonder what this means?

Decentralization essentially means that transactions and network decisions are not approved by a single entity or small group of people, like a board of directors. Instead, the entire blockchain network consisting of thousands of computers (nodes) must all agree that the ledger is correct.

In order to achieve this, the blockchain uses what’s known as a consensus mechanism. The 2 most commonly used consensus mechanisms are proof of work (PoW) and proof of stake (PoS).

PoW: Often referred to as mining, PoW involves computers battling to solve complex algorithms. As an incentive for running their energy-intensive operations, miners are rewarded when an algorithm is solved and a new block is added to the blockchain.

PoS: Staking involves crypto holders locking up their coins and acting as network validators. When a validator confirms the blockchain history is correct, they are compensated for their efforts with newly minted coins.

Similarly to Bitcoin, Ethereum operates as a PoW blockchain. However, this is all set to change come 15 September. The mining model currently used by Ethereum will be turned off for good and replaced by a PoS alternative. Let’s take a look at what that means.

Ethereum of the future

Energy consumption. Over the past couple of years, there has been a lot of negative media attention surrounding crypto mining. Ethereum developers agreed that mining is not environmentally sustainable and decided to help pave the way to a greener crypto future.

The Ethereum Foundation estimates that once the Merge goes live, there will be a 99.95% drop in energy consumption. This is a huge step forward for the crypto community and allows large businesses to get involved in the Ethereum ecosystem while adhering to environmentally sustainable guidelines.

Reduced inflation rate. Another critical change involves Ethereum issuance – the amount of Ethereum added to the circulating supply. Currently, ETH supply is growing at approximately 4.3% per year. While this is not a huge figure when compared to some other cryptos, it is still a notable amount.

After the Merge upgrade, the issuance rate will drop to around 0.43% – an inflation rate reduction of about 90%. This could have a significant impact on supply and demand in the future.

Staking rewards

This is where things get particularly exciting for HODLers. Researchers and developers at Ethereum have released estimates on post-Merge staking incentives. The estimated returns are expected to double, meaning you could earn up to 8% annual percentage return (APR) just for locking up your ETH.

It’s worth noting that staking on chain can be confusing and is not recommended for beginners. Plus, there’s a minimum required balance of 32 ETH to stake directly on the Ethereum blockchain.

Fortunately, there are simpler alternatives. With platforms such as Binance.US and Kraken, you can lock up your Ethereum and receive staking rewards while letting the exchange deal with the tricky stuff.

How to stake Ethereum – 3 ways compared

Summary

The Merge has the whole crypto community talking. If developers can successfully pull it off, it will change the game and open the door for many future Ethereum upgrades.

If you’d like to learn more about the Merge and what Ethereum has planned for the future, check out our deep-dive article.

Trying to get a handle on the markets? Cut through the noise with our overview of the best cryptos to buy right now, explore some strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Billy Endres owns cryptocurrencies as of the publishing date

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