ETHEREUM is seeing its stock price climb as it steadily approaches “the merge”.
On Tuesday, Ether hit a two-and-a-half-month high as its value soared to $3,470 by midday, bitcoin.com reported.
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That price means that the crypto has now seen a roughly 20 percent increase over the past 14 days alone.
Experts say there’s a good reason the world’s second-most-valuable cryptocurrency is soaring: The impending “Ethereum merge” and its heightening news coverage.
“There’s been an increasing amount of mainstream coverage about the Ethereum merge, particularly around how it will lead to ETH’s supply decreasing,” Lucas Outumuro, head of research at IntoTheBlock, wrote in a weekly newsletter published Sunday.
Some investors might also be driving the demand for the crypto up due to FOMO, or fear of missing out, on pre-merge prices, lan Solot, a partner at the Tagus Capital Multi-Strategy Fund, told CoinDesk.
What is the “Ethereum merge”?
Ethereum currently utilizes a “proof-of-work” (PoW) system, in which miners validate transitions by completing arbitrary puzzles.
PoW also deters malicious actors from gaming the system, however, it expends a large amount of computer power.
To address that issue and its related environmental consequences, Ethereum is moving to, or “merging” with, Beacon Chain’s “proof-of-stake” (PoS) system.
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Unlike PoW, Beacon’s system lets users validate transactions according to how many coins they contribute, or “stake”.
Validators are chosen at random to mine, “rather than using a competition-based mechanism like proof-of-work,” according to Investopedia.
What does “the merge” mean for Ether?
If Ethereum’s merge with Beacon’s system is a success, this could mean a number of things for the cryptocurrency.
For starters, PoS would render traditional crypto mining on Ethereum obsolete, which would greatly reduce the blockchain’s environmental impact.
Ether’s demand and value will also likely go up because fewer coins are expected to be issued post-merge, Fortune reported.
Additionally, experts believe that the blockchain’s security will improve against malicious actors and hackers.
“This is a really big deal,” Matt Hougan, Bitwise Asset Management’s chief investment officer, told Fortune.
“The market will be pricing this change in for months. If the merge is successful, ETH will be one of the most popular crypto assets for institutional investors for the foreseeable future.”
What are the risks?
Cryptocurrencies are some of the most volatile stocks a person could trade given their decentralized nature.
Therefore, there are inherent risks associated with both trading Ethereum and “the merge”.
“I think non-crypto natives are becoming aware of the merge for the first time. There really wasn’t much discussion of the merge outside of crypto channels until a few weeks ago,” Hougan said.
“[There’s] understandable excitement, it’s worth noting, of course, that it’s not without risk: It’s a very high stakes technological upgrade, and there are risks it could be delayed or there could be issues in the implementation,” Hougan added.
It’s unclear at the moment when the merge is expected to happen, but some experts think it may happen this summer, according to Fortune.
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