Several months into a likely crypto winter, token prices have fallen like leaves from a tree, hitting the ground where they might remain for months, if not years. But even as industry star Bitcoin has struggled to recover from losses that halved its value, Ethereum has risen like a phoenix from the snowy ashes—its value soaring nearly 70% in past weeks.

Its revival most likely stems from one promising narrative in the crypto world: that of “the Merge,” a forthcoming technology upgrade to the Ethereum blockchain. More than two years in the making, the Merge is already being heralded by crypto pundits as a defining moment for Web3, one that could move toward blockchain tech that might someday power the world.

On August 10, Ethereum developers conducted their third and final test of the upgrade before it goes live on September 15. The run-through, which took place on a practice network dubbed Goerli, has successfully primed the engineering team for the big finish, as well as investors for a big rally.

“It wouldn’t be an understatement to say the Ethereum Merge is the most anticipated event in crypto’s history,” Tom Dunleavy, a senior analyst at crypto research firm Messari, wrote this week. And according to James Butterfill, head of research at crypto management firm CoinShares, over $159 million has flown into Ethereum in the last two months.

For some, it’s sparked hype that a long-awaited “flippening”—the hypothetical moment at which Ethereum overtakes Bitcoin as the top crypto token, first predicted in 2017—could finally be on the horizon.

THE PROMISE OF THE MERGE

The Merge matters, partly because Ethereum is the blockchain variant that forms the vast majority of Web3 technology today. The world’s second-biggest cryptocurrency is built on it (ETH), as well as most NFTs and such blockchain games as the massive Axie Infinity and Alien Worlds. It also pioneered the architecture for smart contracts, or coded programs that execute automatically when certain conditions are met, to do anything from auctioning off a rare collector’s item to voiding a home lease.

But if we were ever to live in a sort of techno-future, where virtual cash swaps hands in the blink of an eye and algorithms divvy up free-floating digital assets among billions of people, there must exist a blockchain with the capacity to log trillions of transactions every day. At present, the Ethereum blockchain can crunch only about 6 kilobytes of data per second (in the 7 years since its founding, it has amassed over 9 terabytes of archival data). Now imagine transaction volumes swelling exponentially, as crypto moves from fringe to default, and its applications grow beyond finance into art, music, and gaming spheres. Could blockchains field such a surge without servers freezing, consumer fees spiking, or energy costs skyrocketing?

That’s the looming question, and the Merge is the first step toward finding an answer. Crucially, it won’t immediately affect Ethereum’s scalability—the blockchain’s transaction capacity, including rate of transactions and so-called gas prices that accompany them, will stay the same—but the hope is that its new infrastructure will support a future system that can proliferate.

It will be the first of five major upgrades on Ethereum’s road map in the coming years: The others, meanwhile, have been dubbed the “surge,” “verge,” “purge,” and “splurge.” By its final destination—and after a rewiring known as “sharding” takes place—the blockchain will be able to log 100,000 transactions per second, the chain’s founder Vitalik Buterin said at a conference in July. Today, its capacity is just 15 per second, according to Coinbase.

Altogether, it’s quite literally a beacon of light in the darkness of crypto winter. The first prototype of Ethereum 2.0, created in December 2020, is dubbed the “Beacon Chain”—and it has run parallel to our version of Ethereum for nearly two years, recording every transaction in tandem as developers tinkered with its mechanics. When it’s ready, the two chains will “merge,” converging like trains on a railroad track (Goerli, in fact, is named after a train station in Berlin). The old system will sunset and a new one will dawn, bringing with it the possibility of a better Web3.

TO A GREENER WORLD

One of the loudest criticisms of the growing Web3 economy has been its carbon footprint, chiefly owing to a consensus mechanism known as proof-of-work (PoW). Consensus mechanisms allow blockchains to determine how much money exists in any person’s digital wallet, and thus must be engineered to defend against entities hijacking the blockchain for nefarious purposes. PoW ensures this by requiring immense energy payloads from those who code the blockchain transactions—more than any single enterprise could reasonably control. The whole process, known as “mining,” can eat carbon equivalent to the country of the Netherlands in a year.

But there is a far less carbon-gobbling consensus mechanism. Called proof-of-stake (PoS), it functions instead by requiring a sum of cryptocurrency as collateral, in a process known as “staking.” A number of newer blockchains now use PoS for its sustainability—but until now, the two top cryptocurrency tokens, Bitcoin and Ethereum, which together command almost 60% of the global crypto market capitalization, have both employed PoW.

That will change when the Merge transitions Ethereum’s blockchain from PoW to PoS, making it the biggest test thus far of that consensus mechanism in the wild. According to developers, the move could cut energy consumption by 99.95%, bringing the network’s greenhouse gas emissions back down to earth.

NEW TOKENOMICS

As Dunleavy tells Fast Company, the Merge will also disrupt the tokenomics of a $200 billion cryptocurrency, which has been perhaps its greatest appeal to investors. Part of that, he says, comes from a shift in supply and demand. In the current system, so-called validators, who code blockchain transactions, are awarded 2 newly minted Ethereum tokens—meaning every time a new block is added to the chain (every 15 seconds), 2 ETH are released into circulation. But when the Merge occurs, the award will be cut to 0.2 ETH, drastically decreasing the inflationary pressure on Ethereum. Some believe this dynamic could even propel a flippening within the next 12 months.

Another factor, he explains, is the elimination of forced sellers in the market: “Every day, when miners receive their tokens, they have to sell some of those to pay for their electricity and mining equipment . . . but stakers don’t have to sell their tokens. That takes a lot of sell pressure off of Ethereum.”

ETHEREUM’S KINGDOM COME

As with most undertakings of such gargantuan proportions, the Merge had been perpetually delayed, frustrating so-called crypto degenerates awaiting the next phase of the Web3 revolution as the time line for the Merge stretched from mid-2021 to late 2022. When, in July, it finally revealed its target date, Ethereum’s price surged 20% in a single day.

But it is not without controversy. There are concerns that proof-of-stake is less secure than proof-of-work: In theory, one entity with a war chest of cryptocurrency could put up enough of a stake in Ethereum that it could singlehandedly manipulate the blockchain by coding faulty transactions.

Then, there are the miners. Ethereum mining—which tasks supercomputers with solving complex mathematical puzzles, solely for the purpose of generating an immense energy payload—has become a lucrative venture, as the fastest miners are rewarded with chunks of ETH. The hustle has given rise to an industry worth an estimated $19 billion, according to a recent report from Messari. Miners churned out over $620 million in July alone, and according to Dunleavy, can reap up to $20 to $30 million per day. Many of them have fronted fortunes in cash, investing in supercomputer equipment, akin to business capital. But the transition to PoS could be a death knell, rendering mining mostly obsolete as a relic of PoW.

That looming concern has led some to call for a “hard fork” of the Ethereum blockchain, in which the new Ethereum would launch as planned, but the old Ethereum would still live on, with one chain instead becoming two. Both would have tokens trading on crypto exchanges—one proposal, from prominent Chinese crypto miner Chandler Guo, lists them under ETHS and ETHW, respectively. While a rather niche campaign, it has won at least one big-name advocate in Chinese crypto magnate and Tron founder Justin Sun.

It won’t be the first time Ethereum forked. In 2016—during one of the most fraught sagas in the blockchain’s history—the network split after hackers exploited a flaw in the smart contract code for one of the first-ever decentralized autonomous organizations, or DAOs, which was built on the Ethereum blockchain. After attackers drained $60 million and threatened to hold the blockchain hostage, developers made the controversial decision to fork the chain, creating a new Ethereum with fund allocations reverted to pre-hack status, and returning the loot to its rightful owners. The hacked chain now exists as Ethereum Classic, but many have stayed loyal to the original—its token, ETC, still charts among the top 20.

But now, with all phases of the Merge greenlit, Ethereum is speeding toward its destiny in September. Time will tell if it’s enough green to bring the market out of crypto winter.