A top crypto fund shares the 3 risks associated with ethereum's upcoming merge — and explains why there isn't a definite date for the upgrade

  • Ethereum’s long-anticipated “merge” is slated for Q3 this year, but there’s no set date for its launch.
  • Bitwise’s Matt Hougan said further delays can’t be ruled out, and the migration to a proof-of-stake algorithm may not bug-free.
  • Ethereum developers aren’t sure when exactly the merge will take place because it’s a technically challenging process, Bitwise’s research head said.

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The ethereum network is about to implement one of the most significant software upgrades in crypto this summer.

The blockchain platform, which currently relies on the proof-of-work algorithm that powers bitcoin, will switch to the proof-of-stake consensus after an event called “the merge.”

This upgrade has been touted as the year’s most compelling story in the digital asset industry by top crypto fund, Bitwise Asset Management.

“The merge” will reduce ethereum’s energy consumption, make native token ether more scarce, and allow stakeholders to earn more yield. But, like anything else, there are risks associated with the event.

“This is a high-stakes, highly complex upgrade to the core blockchain that’s already protecting more than $300 billion in assets,” Matt Hougan, chief investment officer at Bitwise, said in a webcast this week. “So there are significant risks.”

Expected to bring lower costs and speedier transactions on the blockchain, the merge has been long-anticipated and its launch has gone through a series of delays — possibly allowing competitors to snap up market share.

Ethereum developer Tim Beiko said last week the upgrade wouldn’t happen in June as originally expected, but likely in the few months after. 

Btiwise’s Hougan said even further delays can’t be ruled out.

“Complex software launches are often delayed, and this is a complex software launch,” he said.

“So while most people expect it to occur sometime in the next handful of months, there is a possibility of further delays,” he added. “It’s also worth noting that proof of stake systems are more complex than proof of work systems.”

Hougan also noted the process might not be free of glitches, even though it would be well tested.

“Particularly as you go through an upgrade in the transition, there is of course the opportunity or the possibility of unintentional bugs or exploits being introduced into the ethereum blockchain,” he said.

Despite the intent focus of developers, Hougan said he’s seen other blockchains stumble when it comes to big upgrades. So, the risk of that happening to ethereum’s merge is not zero, he said.

Another risk is that the proof-of-stake consensus mechanism is not as battle-tested as proof-of-work, which has proven to secure large blockchain networks for the last 12 years.

“Proof of work has been around for more than a dozen years. It’s periodically stored more than a trillion dollars in assets, and it is a well-proven system.”

“Proof of stake is a newer system and therefore has more inherent risk, and at least its security guarantees may be discounted slightly,” he said, referring to the algorithm’s functionality being tested by several ethereum competititors that have incorporated it into their blockchains like solana.

Despite a number of delays to the merge in the past, many crypto enthusiasts are confident the upgrade will take place in the next few months, but even the developers don’t know exactly when that might be. 

“If you ask an ethereum developer when the merge is coming, the most likely answer you’re gonna get is ‘when it’s ready’ — which is the right approach… given how technically challenging, and how mission-critical this upgrade is,” David Lawant, director of research at Bitwise, said in the webcast, adding that the blockchain is still going through a testing phase now.

“Ethereum has a number of test networks that the merge is currently being implemented on. The latest tests have been successful. And we do think that there is a possibility that the merge will happen sometime in the third quarter. But a delay to Q4 is also a possibility.”

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