ether‘s (ETH -3.07%) The long-awaited merge, a major system overhaul, is expected to take place between September 10th and 20th and, according to the blockchain co-founder, will most likely take place between September 13th and 15th. The final upgrade of the blockchain before this can happen is already underway.
The merger will make some major upgrades to the network. And interestingly, as investors prepare for this event, the price of another cryptocurrency has surged, apparently in response.
The original Ethereum
Earlier this week, the price of Ethereum classic (ETC -1.78%) shot up about 25% but then lost most of that upleg and then wobbled a bit more. As of Wednesday afternoon, it was up about 12% for the week.
Ethereum Classic was the first iteration of the Ethereum blockchain. But in 2016, after a major attack on the network that raised concerns among stakeholders, the Ethereum Foundation implemented a hard fork. This led to the creation of the Ethereum token (ETH), which is now the second largest cryptocurrency in the world. Still, some stayed true to the original Ethereum blockchain network, with a token that became known as Ethereum Classic.
In recent years, developers have been in the process of making significant upgrades to the Ethereum network, all of which have resulted in the merger that will change Ethereum’s governing protocol from a proof-of-work (PoW) mechanism to a proof-of-stake ( PoS) mechanism.
In PoW mechanisms, new tokens are mined by computers that use enormous amounts of energy to quickly solve cryptographic problems, validate transactions, and add new blocks to the blockchain. This is an extremely power-hungry affair.
In contrast, under a PoS mechanism, those who own tokens can “stake” them – essentially by temporarily locking them and making them operational. The protocol randomly selects participants from those who have staked tokens and selects them to validate transactions on new blocks. For this contribution to the network they receive new tokens.
After the merger, all PoW miners that supported the Ethereum blockchain will be unnecessary.
“After the Ethereum merge, Ethereum PoW miners will have to mine other coins as Ethereum moves to PoS,” said Hosam Mazawi of non-fungible token project Snook in an article published by CoinDesk. “The options are Ethereum Classic or a new Ethereum fork.”
Recently, Ethereum Classic’s hash rate — a measure of the processing power deployed on a network and also an indicator of its security — surged to over 48.64 terahashes per second, an increase of 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 no-fee mining promotion for the next few months.
Is Ethereum Classic a buy?
By and large, the crypto investment community chose Ethereum over Ethereum Classic. But Ethereum Classic still has a market cap of around $5 billion and also has similar smart contract functionality to that which has made Ethereum attractive to many developers and investors.
According to the folks running the Ethereum Classic protocol, the difference between them is that on Classic, “applications run exactly as programmed, with no downtime, censorship, or third-party interference.” This statement puts a strong emphasis on the decentralization component of crypto.
In many ways, Ethereum Classic might appeal to some in the same way Bitcoin does. Bitcoin only makes minimal network updates and its network is no longer superior from a technical point of view. But because it was the pioneering blockchain, the majority of its stakeholders prefer to keep the network in its original form.
As more PoW miners flock to Ethereum Classic, the hashrate would increase and the network would become more secure. But that would require these miners to stick with Ethereum Classic instead of moving their machines to other blockchain networks.
Ultimately, I think Ethereum Classic will retain a core of supporters. I don’t think it has the same benefits as Ethereum, but if it stays relevant it will likely move higher if the rest of the crypto market does, so I think it could go up 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.