Ethereum appears to be undergoing a massive update. At long last.

The “Merge,” which has been delayed for years, appears to be on track for September, with the blockchain’s encryption undergoing a fundamental shift to a system in which the generation of new ether tokens becomes substantially less energy-intensive.

“It’s an exciting time for the ethereum ecosystem,” said Omar Syed, co-founder of smart contract platform Shardeum. “I think there will be drama surrounding the Merge, but I don’t think there will be any technical hiccups.”

Investors appear to agree, with ether outperforming bitcoin.

Ether has risen for six weeks in a row, rising from a one-and-a-half-year low of $880 in mid-June to values above $2,000, though still far from its November 2021 high of $4,868.79.

Bitcoin, on the other hand, has recovered 37 per cent from its June low to $24,116.

Ether is eroding bitcoin’s market share: it now accounts for more than a fifth of the total crypto market worth of $1.14 trillion, up from less than 14.9% two months ago, according to CoinMarketCap. Bitcoin’s market share has dropped from 44.9 per cent to 40.2 per cent over the same time period.

“Crypto is still very tightly coupled, I think when the Merge successfully completes it could drive up the price of bitcoin as well,” said Alex Miller, CEO of Hiro, which builds developer tools to create applications for bitcoin.

If the Ethereum developers succeed, as many expect, it may be a game changer for the blockchain, making it less expensive to mine and easier to use for banking and other crypto businesses.

Of course, little is definite about the elusive transition, which has been postponed several times, with developers most recently abandoning plans to hit the button in June, terrifying investors who began to believe it might never happen.

The Merge is exceedingly dangerous, and if it fails, the fortunes of the nearly 122 million ether in circulation, valued at around $232 billion, could be compromised.

According to Hiro’s Miller, if the upgrade fails, it will “set the entire crypto business back five or ten years.”

Currently, the ethereum blockchain validates blocks using the energy-intensive proof-of-work (PoW) technique, in which miners use significant quantities of electricity to quickly solve difficult computational challenges in order to win newly produced currency.

Ethereum has been experimenting a proof-of-stake (PoS) system on a separate chain, in which miners only “stake” their currency to confirm transactions and create new blocks. It promises to cut the blockhain’s energy consumption by 99.95% while also speeding up transactions.

Not everyone is happy about the approaching merger of the two systems, especially ether miners, whose expensive mining rigs will be judged obsolete and unable to mine bitcoin.

Historically, ether mining has been more profitable than bitcoin mining. According to Arcane Research, ether miners will earn $18 billion in 2021, compared to $17 billion for bitcoin miners.

Several miners choose to mine the next best option, such as ethereum classic or ravencoin tokens.

At least one miner has announced his intention to fight and continue mining Ethereum, suggesting the prospect that some people would continue to run the PoW chain in its current form even after the merger, perhaps competing with the updated blockchain.

That strategy, however, has disadvantages.

To discourage the PoW parallel chain after the Merge, Ethereum inventors devised a “difficulty bomb” that significantly increased mining difficulty.

Furthermore, the Merge has received support from both Tether and USDC, the two largest stablecoins, reducing the likelihood of widespread adoption of the alternative PoW chain.

“The likelihood of a long-lasting chain split of Ethereum following the Merge remains slim,” said Alex Thorn, head of firmwide research at Galaxy Digital.

Nonetheless, derivatives market positioning indicates that at least some investors are preparing for a hard fork, or a parallel PoW chain.

According to Matthew Sigel, head of digital assets research at investment management VanEck, ether futures were also trading at a premium of $1,905 on the CME platform, “indicating predictions surrounding a proof of work fork.”

“But that gap is not so huge so as to think there is extreme froth,” he added.

(Adapted from Reuters.com)

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