- The Ethereum blockchain is expected to undergo a major change in August.
- The event, dubbed the merge, will transform how ether is mined, or created.
- The transition will theoretically make for a greener and more secure crypto space.
The blockchain underpinning the world's second-largest cryptocurrency is getting a major upgrade in August.
Ethereum cofounder Vitalik Buterin announced the long-awaited date at a developer conference in May, setting a more specific time for the highly-anticipated switch that previously had no deadline.
There are a few ways to think of the event, which has been dubbed the merge, named so because two major aspects of the Ethereum platform will be joined together: the existing chain and a relatively new one.
It'll transform the backbone of how people transact with ether — a transformation that could make for a greener and more secure future in this part of the crypto world. But as some industry watchers have described it, it'll be like replacing the engine of an airplane while it's flying.
The merge 'replaces these energy-hungry machines'
Ether, like bitcoin, is created when so-called miners use computers with really fast processors to solve complex computational puzzles. Once solved, the transactions are then secure on the Ethereum blockchain.
The first miner to solve any given puzzle receives a reward payment in the form of ether. In recent years, that reward has been two ether, which amounts to over $6,000.
That competition incentivizes miners to run their computers at 100% for long periods of time, eating up massive amounts of energy — about the same carbon footprint made by the country of Finland, per the blockchain firm Consensys.
That's why critics are concerned about cryptocurrency's environmental impact.
The merge will transform Ethereum from this current model, known as proof-of-work, to one called proof-of-stake, spelling the end of ether crypto mining. Instead, crypto owners who hold a certain amount of ether can deposit, or stake, it and become a so-called validator.
"It replaces these energy-hungry machines," David Lawant — director of research at the crypto index fund Bitwise Asset Management — told Insider, and Ethereum will end up consuming much less energy than it does today — an estimated 99% less.
The more you stake, the greater chance you have of being chosen as a validator to arrange people's transactions on the Ethereum blockchain into blocks — and reap the reward, which will be payable in ether.
Since these validators use their own crypto for staking, they're incentivized to better perform their jobs. If they don't, their staked ether starts to dip. That's why proof-of-stake proponents hold the model up as a boon for greater security — validators are motivated to keep the network more secure.
There will also be fewer ether coins issued, creating more scarcity for the virtual currency.
Once the merge is complete, Ethereum's blockchain will be completely proof-of-stake, a chain dubbed the Beacon Chain.
With more security and a lesser chance of adverse climate impact, experts predict that more institutional investors will be interested in the space. Billionaire investor Mark Cuban himself told Fortune recently that he's "very bullish" on the merge.
It'll happen in August if all goes well
Some developers had already predicted that the merge would happen this summer. However, transferring to a new model poses a complex engineering undertaking, Lawant said, so it's difficult to set a hard timeline.
Buterin said at the May conference that there's "always a risk of problems," which could delay the event to September or October.
"If you ask an Ethereum developer when the merge is shipping, they're going to say 'when it's ready,'" Lawant said.