Ethereum price: how has ETH cost been affected by The Merge, what effect will it have on the environment?

Investors may have heard much talk over an upcoming “Merge” over the past few days, a move being hailed as one of the most crucial moments in cryptocurrency history.

Even those not up to speed with blockchain and cryptocoins may have come across the term, such is its impact on the world of finance and - in particular - the cryptocurrency Ethereum.

Here is everything you need to know.

What is ‘The Merge’?

The Ethereum Merge alters how new transactions are verified on the Ethereum blockchain, and the currency has transitioned from a "proof of work" to a "proof of stake" system.

Simply put, the upshot of the change means that Ethereum’s energy consumption - it previously consumed the same amount of energy as a mid-sized country like Finland - will be reduced by around 99.95%.

That’s because the existing proof of work system employed by most major cryptocurrencies (like Bitcoin), requires extremely expensive and powerful computers to verify blockchain transactions by solving challenging mathematical riddles.

Under this form of verification, people are compensated for confirming transactions. This process - known as “mining” can be undertaken by anyone, but again, requires extremely energy hungry, high-end computing hardware.

Under a proof of stake system, people and corporations put their own cryptocoins on the line as collateral in the validation process, meaning they can lose those coins if they make a mistake.

The major technological benefit of this way of working is that it can be done on ‘standard’ computers, the kind that everyday people may already have in their home.

Being relatively less powerful, these machines usually require much less energy to run.

How much energy do cryptocurrencies use?

The impact of cryptocurrency on the environment has always been one of its major drawbacks.

But according to the Ethereum Foundation, switching to proof of stake will reduce the currency’s annual energy consumption from 112 Terawatt hours to 0.01 Terawatt hours.

The cryptocurrency’s co-founder, Vitalik Buterin, said: “This is the first step in Ethereum’s big journey towards being a very mature system. There are still steps left to go.”

The Merge is not without risk, and as Ethereum’s blockchain is so central to the crypto world, any problems might be disastrous for the entire industry.

The shift of Ethereum from proof-of-work to proof-of-stake will be the first of its kind, and if The Merge is successful, it will be a huge achievement of engineering and human coordination.

If it fails, hundreds of billions of dollars in value could be lost.

The Merge is only now going ahead because its developers and other stakeholders have completed more than a dozen successful tests and simulations.

Following The Merge, Ethereum’s core developers will continue to work on the open-source network as before, with enhancements to network fees, performance and security planned in the next months and years.

What does it mean for Ethereum’s price?

So far, the Merge has created some volatility in Ethereum’s value. On Thursday (15 September) morning it was priced at just under $1,600.

It reached a monthly high of $1,780 on Saturday (10 September) before a sharp decline on Tuesday (13 September), and has been varying since.

However, in the grand scheme of things, the adjustments have been minor, implying that any meaningful changes to Ethereum’s value may be more long-term.