Ethereum‘s (ETH 8.12%) long-awaited Merge, a major system revamp, is expected to occur between Sept. 10 and Sept. 20 and will — according to the blockchain’s co-founder — most likely occur between Sept. 13 and Sept. 15. The final upgrade of the blockchain before that can happen is already underway.
The Merge will make some huge upgrades to the network. And interestingly, as investors gear up for this event, the price of another cryptocurrency has surged, apparently in response to it.
The original Ethereum
Earlier this week, the price of Ethereum Classic (ETC 8.81%) shot up by about 25%, although it then lost the majority of that bounce, then fluctuated some more. As of mid-afternoon Wednesday, it was up by about 12% for the week.
Ethereum Classic was the first iteration of the Ethereum blockchain. But in 2016 after a big attack on the network that raised concerns among stakeholders, the Ethereum Foundation implemented a hard fork. That led to the creation of the Ethereum token (ETH) that is now the second-largest cryptocurrency in the world. Still, some stayed loyal to the original Ethereum blockchain network, with a token that became known as Ethereum Classic.
Image source: Getty Images.
Over the last several years, developers have been in the process of doing significant upgrades to the Ethereum network, all of which are leading to the Merge, which will change Ethereum’s governing protocol from a proof-of-work (PoW) mechanism to a proof-of-stake (PoS) mechanism.
Under PoW mechanisms, new tokens are mined by computers that use huge amounts of power to rapidly solve cryptographic problems to validate transactions and add new blocks to the blockchain. This is an extremely electricity-hungry proposition.
By contrast, under a PoS mechanism, those who hold tokens can “stake” them — essentially, temporarily locking them up and putting them to work. The protocol randomly chooses participants from among those who have staked tokens, and selects them to validate transactions on new blocks. For that contribution to the network, they receive new tokens.
After the Merge, all of the PoW miners that have been supporting the Ethereum blockchain will be unnecessary.
“Post-Ethereum Merge, the Ethereum PoW miners will need to mine other coins since Ethereum is moving to PoS,” said Hosam Mazawi of the non-fungible token project Snook in an article published by CoinDesk. “The options are Ethereum Classic or some new Ethereum fork.”
Recently, Ethereum Classic’s hashrate — a measure of the computing power deployed on a network and also an indicator of its security — surged to over 48.64 terahashes per second, up more than 133% since July. Additionally, BTC.com, a top mining pool (a group of miners who essentially pool their mining resources) is now supporting Ethereum Classic and offering a “zero fee” mining promotion for the next few months.
Is Ethereum Classic a buy?
Broadly speaking, the crypto investing community chose Ethereum over Ethereum Classic. But Ethereum Classic still has a roughly $5 billion market cap and also has similar smart contract functionality to the one that has made Ethereum attractive for many developers and investors.
According to the people running the Ethereum Classic protocol, the difference between them is that on Classic, “applications run exactly as programmed without downtime, censorship or third party interference.” That statement puts a strong emphasis on the decentralization component of crypto.
In a lot of ways, Ethereum Classic could appeal to some in the same way Bitcoin does. Bitcoin does only minimal network updates, and its network is not superior from a technical perspective anymore. But because it was the pioneering blockchain, the majority of its stakeholders prefer to preserve the network in its original form.
The more PoW miners that flock to Ethereum Classic, the more its hashrate would increase, and the more secure the network would become. But this would require those miners sticking with Ethereum Classic rather than shifting their machines to other blockchain networks.
Ultimately, I think Ethereum Classic will maintain a core of followers. I don’t think it has the same upside as Ethereum, but if it stays relevant, it will likely move higher if the rest of the crypto market does, so I do think there could be upside from here.
Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
