3 misconceptions about the ‘merge,’ Ethereum’s next big upgrade that will affect its supply and environmental impact

March 28, 2022, 6:39 PM UTC

You might’ve heard that the world’s most-used blockchain is nearing a massive upgrade that’ll change its infrastructure and make it more energy efficient—but there are a few misconceptions circulating that investors should know about.

In a highly-anticipated upgrade that’s being called the “merge,” Ethereum plans to shift from a proof-of-work model to proof-of-stake (more on that later).

The goal of the merge is to make Ethereum more scalable, secure and sustainable. After all, if it happens as planned, its crypto mining would become obsolete, which would reduce Ethereum’s environmental impact substantially; the supply of Ether would likely decline, because fewer coins are expected to be issued; blockchain security against potential attack is supposed to improve; and institutional investment in the Ethereum network is expected to increase.

But, there are other narratives surrounding the merge that are inaccurate. It might be difficult to determine what is true and what is not. 

Here are three common misconceptions, corrected.

1. The merge won’t create a ‘new’ Ethereum token

One big misconception is that Ethereum will have a “new” token following the merge. This is inaccurate, Ethereum developer Tim Beiko told Fortune. Ethereum’s cryptocurrency, Ether (ETH), will remain the same.

This fallacy surrounding a “new” token is why the Ethereum Foundation issued guidance in January regarding how the merge should be referenced. 

In the past, the merge was referred to as “Ethereum 2.0” or “Eth2.” But, in January, the Ethereum Foundation and the blockchain’s core developers announced that this labeling would be phased out, as many scammers were trying to convince users that there would be a new “Eth2” token separate from ETH, which is false.

“Unfortunately, malicious actors have attempted to use the Eth2 misnomer to scam users by telling them to swap their ETH for ‘ETH2’ tokens or that they must somehow migrate their ETH before the Eth2 upgrade,” the Ethereum Foundation wrote in a blog post

Beiko recommends investors remain “suspicious” of any promises from outsiders regarding an airdrop or free tokens related to the merge.

2. The merge will not lower Ethereum’s fees

Another misconception is that the merge will lower Ethereum’s “gas fees,” or transaction fees. This is also inaccurate, Beiko said.

The merge will only shift Ethereum from a proof-of-work model to proof-of-stake. 

Ethereum currently relies on what’s known as proof-of-work, in which miners must complete complex puzzles to validate transactions and create new coins. This process requires a huge amount of computer power, and is often criticized due to its environmental impact. 

With the planned upgrade, Ethereum is moving to proof-of-stake, which would let users validate transactions according to how many coins they contribute, or stake. In return for staking more coins, users have a higher likelihood of being chosen to validate transactions on the network and earn a reward.

“The Merge is Ethereum’s most important upgrade to date,” David Lawant, director of research at Bitwise Asset Management, told Fortune. “Every crypto network needs to decide how it chooses, in a decentralized way, who gets to propose a new block of transactions that all participants will later validate and add to the blockchain. The Merge will mark Ethereum’s shift from proof-of-work to proof-of-stake.”

Currently, Ethereum has both a proof-of-work and proof-of-stake chain running in parallel. While both chains have validators, only the proof-of-work chain currently processes users’ transactions. Once the merge is complete, Ethereum’s blockchain will shift fully to the proof-of-stake chain, called the Beacon Chain, making mining obsolete.

Many might hope that this structure change would cause the price of “gas fees” to decline, since such fees can sometimes add hundreds of dollars to the cost of processing Ether transactions depending on how congested the network is. But that won’t happen, Beiko said. 

3. There’s no set date for when the merge will happen 

Despite a lot of speculation, there is no official timeline for the merge yet, Beiko said. 

Some predict it might happen this summer, but it’s important to only rely on the word of the Ethereum Foundation regarding confirmed timing. As Beiko says, “it is likely that scams [and] fake announcements will pop up in the coming months.”

The unknown timeline is due to how much preparation is required for the merge to take place. After all, the success of the merge is a big deal because there’s a lot—including a great sum of money—relying on Ethereum. It not only powers Ether, the second largest cryptocurrency, but also supports popular decentralized finance (DeFi) applications and non-fungible tokens (NFTs). 

To ensure that the merge happens smoothly, Ethereum developers have launched multiple tests and upgrades over many years.

“This is a significant engineering undertaking,” Lawant said. “[A] lot of testing and preparation goes into such endeavors. The mantra for such mission-critical upgrades usually is: ‘It will happen when it’s ready.’”

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