Why crypto is thrilled — and nervous — about the Ethereum Merge

The second-largest blockchain is going all in on proof of stake in September. Crypto experts see opportunities and dangers ahead.

A passenger jumps from a train compartment to another at a railway station during a nationwide strike in Kolkata on September 20, 2012. Shopkeepers, traders and labourers blocked railway lines and closed markets across India September 20 in a nationwide day of protest against reforms allowing in foreign supermarkets such as Walmart. AFP PHOTO/Dibyangshu SARKAR (Photo credit should read DIBYANGSHU SARKAR/AFP/GettyImages)

Sara Xi, chief product officer of Prime Trust, likens the Merge to moving cargo from one train to another while the two are moving.

Photo: Dibyangshu Sarkar/AFP/Getty Images

In crypto, it’s simply known as “the Merge,” the key milestone when a major industry player shifts to a new system of verifying transactions.

On Sept. 19, Ethereum is scheduled to make that much-anticipated transition, leaping from its original proof-of-work system to a newer layer based on a proof-of-stake mechanism.

The switch will purportedly transform Ethereum into a more scalable, secure and eco-friendly network. But it involves a complex process that experts say is fraught with risks, potentially causing serious disruptions in crypto’s second-biggest ecosystem.

Sara Xi, chief product officer of Prime Trust, likens the Merge to moving cargo from one train to another while the two are moving.

“Once the Merge takes place, it runs just like a normal train and then you can take the cargo out,” she said. “People also use [the analogy], ‘Oh, you have two planes midflight and you're swapping out engines.’ That really scares people.”

There’s fear around the Merge, but also excitement.

The change will likely enhance Ethereum’s cred as a more environmentally responsible ecosystem than, say, bitcoin. By moving away from proof of work, which bitcoin and several other currencies are sticking with, the blockchain is abandoning a system of “mining” that’s long been denounced for excessive energy use. The Ethereum Foundation says the Merge will reduce the network’s energy consumption by 99.95%.

“They're reducing energy by getting rid of the miners,” Mike Fasanello, chief compliance officer of LVL, told Protocol. “That's a huge answer to environmentalist calls.” Ethereum’s plan to drop crypto mining, he said, was “one of the big reasons people flocked” to it versus bitcoin. “Now it's going to be even more so.”

The Merge is also expected to bolster the value and market position of ether, Ethereum’s native cryptocurrency, Fasanello added.

Even after the crypto market’s crash, ether currently has a market cap around $200 billion, making it the second most valuable cryptocurrency after bitcoin, which is worth roughly $410 billion. Ethereum, which supports other cryptocurrencies as well, plays a critical role in crypto as the industry’s dominant blockchain for smart contracts.

“If the Merge takes place, then it's really solidifying its position as the largest smart contract developer network,” Xi said.

Chainalysis economist Ethan McMahon said the change is also expected to make the Ethereum ecosystem more attractive to traditional financial institutions “who may have been standing on the sidelines for a while.”

But there are worries about how the Merge will play out.

One big concern is scams. The Ethereum network and some in the broader crypto community have been using the shorthand “ETH2” to refer to the proof-of-stake layer. The Ethereum Foundation has acknowledged that this could lead to confusion during the Merge and warned against “scams trying to take advantage of users during this transition” by making them believe that they need to take steps to upgrade to ETH2 or swap their current tokens for new ones.

“There is no ‘ETH2’ token, and there is nothing more you need to do for your funds to remain safe,” the foundation said.

Another key question: What happens to Ethereum’s miners?

The proof-of-work Ethereum network, known as Mainnet, has relied on miners to validate blockchain transactions. Ethereum’s proof-of-stake layer, known as the Beacon Chain, will rely on builders (who bundle transactions together) and validators, whose ability to select and validate transaction blocks depends on how much cryptocurrency they own.

Andy Long, CEO of White Rock Management, said that for miners, the Merge means “the end of the super-normal returns they've enjoyed lately.” McMahon of Chainalysis agreed, saying Ethereum miners face a “grim” future.

That has led to some speculation that the Ethereum miners would opt to keep going on their own, leading to the creation of a fork, similar to one that created Ethereum Classic in 2016.

Omid Malekan, who teaches blockchain and cryptocurrencies at Columbia Business School, pointed to the risk of “having two competing chains in the short term,” which could lead to confusion. “Anyone who issues a token that has some kind of off-chain reserve like a stablecoin is going to have to decide which version of their token is the one that's redeemable,” he told Protocol.

Circle, the issuer of USDC, which uses Ethereum, addressed the fork issue in a blog post about the Merge. “While we don’t speculate on the possibility of forks post Ethereum Mainnet merge, USDC as an Ethereum asset can only exist as a single valid ‘version,’ and as stated previously, our sole plan is to fully support the upgraded Ethereum [point-of-stake] chain.”

Experts said technology glitches could prevent a smooth transition to the new system: for example, if validators or other nodes fail to update their software. That could spook the market.

“If the Ethereum Merge fails or has substantial setbacks, that's going to trigger a devaluation of the currency,” Fasanello said. “It's gonna really test the stomachs of investors and speculators,” he added, and could trigger a new crypto winter.

Xi said a fumbled or failed Merge would hurt Ethereum’s standing as the dominant smart contract network. “It gives opportunities to all the alternative smart contract chains,” she said, citing Solana and Avalanche as examples.

“It is their moment to shine if Ethereum doesn't complete the Merge,” she said. “There are much faster and cheaper chains. If Ethereum fails, it will in the short term push up the prices for all the alternatives out there.”

But Xi suggested the worst-case scenarios may not play out. “I try not to worry about things I have no control over,” she said. “I have a moderate level of confidence in the technology.”

There are still many reasons to be optimistic, she said, that “the trains don't crash and we actually move everything to the new train.”

Update: The attribution on statements made by the Ethereum Foundation cited in this article was clarified.


Binance CEO wrestles with the 'Chinese company' label

Changpeng "CZ" Zhao, who leads crypto’s largest marketplace, is pushing back on attempts to link Binance to Beijing.

Despite Binance having to abandon its country of origin shortly after its founding, critics have portrayed the exchange as a tool of the Chinese government.

Photo: Akio Kon/Bloomberg via Getty Images

In crypto, he is known simply as CZ, head of one of the industry’s most dominant players.

It took only five years for Binance CEO and co-founder Changpeng Zhao to build his company, which launched in 2017, into the world’s biggest crypto exchange, with 90 million customers and roughly $76 billion in daily trading volume, outpacing the U.S. crypto powerhouse Coinbase.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at or via Google Voice at (925) 307-9342.

Sponsored Content

Great products are built on strong patents

Experts say robust intellectual property protection is essential to ensure the long-term R&D required to innovate and maintain America's technology leadership.

Every great tech product that you rely on each day, from the smartphone in your pocket to your music streaming service and navigational system in the car, shares one important thing: part of its innovative design is protected by intellectual property (IP) laws.

From 5G to artificial intelligence, IP protection offers a powerful incentive for researchers to create ground-breaking products, and governmental leaders say its protection is an essential part of maintaining US technology leadership. To quote Secretary of Commerce Gina Raimondo: "intellectual property protection is vital for American innovation and entrepreneurship.”

Keep Reading Show less
James Daly
James Daly has a deep knowledge of creating brand voice identity, including understanding various audiences and targeting messaging accordingly. He enjoys commissioning, editing, writing, and business development, particularly in launching new ventures and building passionate audiences. Daly has led teams large and small to multiple awards and quantifiable success through a strategy built on teamwork, passion, fact-checking, intelligence, analytics, and audience growth while meeting budget goals and production deadlines in fast-paced environments. Daly is the Editorial Director of 2030 Media and a contributor at Wired.

How I decided to leave the US and pursue a tech career in Europe

Melissa Di Donato moved to Europe to broaden her technology experience with a different market perspective. She planned to stay two years. Seventeen years later, she remains in London as CEO of Suse.

“It was a hard go for me in the beginning. I was entering inside of a company that had been very traditional in a sense.”

Photo: Suse

Click banner image for more How I decided seriesA native New Yorker, Melissa Di Donato made a life-changing decision back in 2005 when she packed up for Europe to further her career in technology. Then with IBM, she made London her new home base.

Today, Di Donato is CEO of Germany’s Suse, now a 30-year-old, open-source enterprise software company that specializes in Linux operating systems, container management, storage, and edge computing. As the company’s first female leader, she has led Suse through the coronavirus pandemic, a 2021 IPO on the Frankfurt Stock Exchange, and the acquisitions of Kubernetes management startup Rancher Labs and container security company NeuVector.

Keep Reading Show less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.


UiPath had a rocky few years. Rob Enslin wants to turn it around.

Protocol caught up with Enslin, named earlier this year as UiPath’s co-CEO, to discuss why he left Google Cloud, the untapped potential of robotic-process automation, and how he plans to lead alongside founder Daniel Dines.

Rob Enslin, UiPath's co-CEO, chats with Protocol about the company's future.

Photo: UiPath

UiPath has had a shaky history.

The company, which helps companies automate business processes, went public in 2021 at a valuation of more than $30 billion, but now the company’s market capitalization is only around $7 billion. To add insult to injury, UiPath laid off 5% of its staff in June and then lowered its full-year guidance for fiscal year 2023 just months later, tanking its stock by 15%.

Keep Reading Show less
Aisha Counts

Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She's based in Los Angeles and can be reached at


Figma CPO: We can do more with Adobe

Yuhki Yamashita thinks Figma might tackle video or 3D objects someday.

Figman CPO Yuhki Yamashita told Protocol about Adobe's acquisition of the company.

Photo: Figma

Figma CPO Yuhki Yamashita’s first design gig was at The Harvard Crimson, waiting for writers to file their stories so he could lay them out in Adobe InDesign. Given his interest in computer science, pursuing UX design became the clear move. He worked on Outlook at Microsoft, YouTube at Google, and user experience at Uber, where he was a very early user of Figma. In 2019, he became a VP of product at Figma; this past June, he became CPO.

“Design has been really near and dear to my heart, which is why when this opportunity came along to join Figma and rethink design, it was such an obvious opportunity,” Yamashita said.

Keep Reading Show less
Lizzy Lawrence

Lizzy Lawrence ( @LizzyLaw_) is a reporter at Protocol, covering tools and productivity in the workplace. She's a recent graduate of the University of Michigan, where she studied sociology and international studies. She served as editor in chief of The Michigan Daily, her school's independent newspaper. She's based in D.C., and can be reached at

Latest Stories