Steps away from the Temple of Poseidon, a monument to the golden age of Athens, sits the five-star Cape Sounio hotel. There, last October, more than 40 blockchain developers descended for a high-stakes workshop they dubbed Amphora. Outside, tourists explored the beauty of Greece. For their part, the devs sat in the hotel’s beige, mostly windowless basement. For several nights they pounded out code until a dawn they did not see broke over the Aegean.
The devs had gathered from all corners of the globe to push forward the most ambitious project in blockchain history—one that many in the crypto world deemed impossible. The plan entailed preparation for an upgrade to Ethereum that, if they could pull it off, would wipe away more than 99% of the popular blockchain’s future carbon footprint, while also laying the groundwork to bring crypto into the mainstream. The project would come to be known simply as the Merge.
Almost a year later, on Sept. 15, the Merge became a reality. What it will mean for the future of Ethereum, and for how business uses the blockchain, will be debated for months to come.
For those familiar with Ethereum’s history, the image of ambitious developers crammed into a spartan space is fitting. Eight years ago, a similarly frenetic group piled into a mattress-strewn house in Zug, Switzerland, to turn Ethereum—an idea that was still little more than a white paper authored by then-teenaged genius Vitalik Buterin, its creator—into a real-world application. The Zug crew eventually succeeded, and Ethereum is today the most popular blockchain in the world in terms of both applications and user numbers.
The challenge in Greece was of a different order. Despite its success, Ethereum has been dogged by criticism that its transaction speeds are too slow, and that its computing process is an ecological catastrophe. The environmental criticism, in particular, threatens to overshadow the achievements that have made Ethereum the pulse of the crypto ecosystem.
While casual observers often lump Ethereum in with Bitcoin, the two blockchains are very different. Ethereum has about half the market value of its counterpart, but its versatility and technological potential far outstrips Bitcoin’s. This is primarily because of its ability to run smart contracts, collections of code that execute a set of instructions on the blockchain, which have powered the field of decentralized finance, or DeFi. Ethereum smart contracts also underlie a wealth of other tools and applications, including NFTs, gaming, and new forms of music royalties—the kinds of projects that generate excitement outside the die-hard crypto community.
But Ethereum was also built to rely on the same record-keeping model as Bitcoin—a “proof-of-work” system that issues rewards to those deploying raw computer power to add blocks to the blockchain. That process has proved to be incredibly energy-intensive. A recent academic study found that the “mining” of Bitcoin consumes over 96 terawatt-hours of electricity per year—more than all of the Philippines.
All this has led critics to blast Ethereum as a major polluter and, in some cases, to seek out newer blockchains like Solana that can perform smart contracts without the energy guzzling. The issue has also preoccupied Ethereum developers, who have talked about making their precious creation more green. Their long-planned solution turned on “proof of stake”—a newer technology that relies on a trusted network of validators to verify transactions rather than brute computer power. Shifting to proof of stake would mean a radical reduction in energy use, but also entail a high-stakes technological gambit many predicted would fail.
For the developers who crisscrossed the world for Ethereum hackathons, the Merge—so named because it involves merging a proof-of-stake network with the main Ethereum blockchain—became all-consuming. Parithosh Jayanthi was one of those huddled in the hotel basement last October. “[It’s] the most impact any of us individually could have to help [prevent] climate change,” Jayanthi told Fortune, adding that he viewed it as a way to counteract “probably the carbon budget of my entire life … which is insane to think about.”
Skeptics point out that even post-Merge, Ethereum faces major barriers to wide adoption. Molly White, a prominent crypto critic and software engineer, says that the Merge might spur eco-conscious companies to try Ethereum, but won’t address complaints that it is sluggish and that its “gas fees” (transaction fees, to normies) are too high. “If that was something that was changing, then I can see that changing the narrative, but it’s mostly not doing that,” White says.
White and other critics still view Ethereum and other blockchains primarily as tools for financial speculation. (On that front, the Merge may be a disappointment. The change has reduced new issuance of Ether tokens, which could lead to a future price jump, but even some boosters say it’ll be largely irrelevant to Ether’s market value.) Others note that the Merge will not make Ethereum easier for ordinary people to use. Meanwhile, Ethereum and other popular blockchains are stuck in a regulatory morass over whether their tokens are illegal securities, a controversy that has made some businesses reluctant to start working with the platforms.
Ethereum supporters, undaunted, see the Merge as a “critical precursor” to making Ethereum cheaper, faster, and more user-friendly. Mainstream banks like Bank of America and others have also predicted that the Merge will lead to more mainstream adoption of Ethereum. That would include investors hoping to profit from new, post-Merge staking opportunities, but also businesses hoping to use it to underpin new tech applications and to execute contracts and transactions in non-crypto assets and industries like real estate, finance, and retail.
Such predictions will soon be tested. Still, developers were thrilled to have accomplished the proof-of-stake transition on Sept. 15 without a hitch. Though it was past 3 a.m. for many when the official Merge occurred, the Ethereum community showed no signs of exhaustion, celebrating on Zoom or partying in person in Berlin. Only time will tell if the Merge catalyzes a golden age for Ethereum that lasts for the long haul.
This article appears in the October/November 2022 issue of Fortune with the headline, “Merging toward the mainstream.”
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