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Ethereum Goerli Merge: Everything You Need to Know

By:
Joel Frank
Updated: Aug 14, 2022, 09:52 GMT+00:00

A successful PoW to PoS merge of Ethereum’s Goerli testnet on Thursday would green light the mainnet’s transition in September.

Ethereum

Key Points 

  • Ethereum developers run the “Merge” to PoS from PoW on the Goerli testnet on Thursday.  
  • This is the final trial run ahead of the mainnet merge scheduled for 19 September.  
  • Success will give the Mainnet merge the green light and could support an ETH rally.  

What is the Goerli Merge? 

In less than 24 hours, the Ethereum network is set to move one step closer to its most important upgrade ever. The second-largest cryptocurrency by market capitalization has for years been preparing to shift its blockchain consensus mechanism from Proof-of-Work (PoW) to the much less energy intensive and, according to some, more decentralized Proof-of-Stake (PoS).  

The so-called “Merge” to “Ethereum 2.0” is slated to take place on 19 September, senior Ethereum developers hinted last month. But before implementing the “Merge” on Ethereum’s mainnet, developers have one more hurdle to get past.  

Having successfully implemented the transition from PoW to PoS on two of Ethereum’s main testnets in June and July (Ropsten and Sepolia), developers want to implement the merge on one final testnet.  

On Thursday 11 August, Ethereum developers will run the merge on Ethereum’s Goerli testnet. All going well, the mainnet merge will get the go-ahead for 19 September. If there are problems with the Goerli merge, this would likely delay the mainnet merge.  

Ethereum After the Merge 

Ethereum’s merge to PoS is expected to reduce the network’s energy consumption by 99.95%. Whilst Ethereum mining will eventually become a thing of the past as the development team set of the so-called “difficulty bomb” that will eventually make profitable Ethereum mining impossible, Ethereum owners will be able to stake their ETH tokens for a steady return, as happens on other PoS networks.  

Cryptocurrency mining energy consumption is a source of concern for climate-aware investors and regulators across the globe. For example, Bitcoin mining often finds itself in the firing line from US lawmakers who are worried about the network’s large carbon footprint.  

Ethereum’s transition to PoS ought to shield it from this line of attack. Indeed, as crypto attracts further institutional investment in the coming years, Ethereum’s low carbon footprint could be a key differentiator to Bitcoin as the popularity of ESG investing continues to grow. 

Meanwhile, some investors have argued that once Ethereum has transitioned to PoS, it will experience a supply shock as owners lock up their tokens in staking for extended periods of time. For all of the above reasons, Ethereum’s merge has been generally viewed as a bullish development for ETH.  

A successful “Merge” also sets the stage for the next series of major network upgrades, called “Surge”, “Verge”, “Purge” and “Splurge”. At the recent Ethereum Community Conference (EthCC) in Paris, Ethereum co-founder Vitalik Buterin spoke about the upgrade roadmap, which will make Ethereum “a much more scalable system”.  

“By the end, Ethereum will be able to process 100,000 transactions per second,” he said. Ethereum has been criticized in the past for its scalability problems that have resulted in high network (gas) fees and congestion.  

How Might ETH React to the Goerli Merge? 

Ethereum has rallied more than 80% from its mid-July lows near the $1,000 and was last changing hands in the mid-$1,800s. Whilst much of this has been in tandem with a broader cryptocurrency market rally amid an improvement in macro sentiment (Bitcoin is up over 25% since its mid-July lows), analysts have said that anticipation ahead of the merge has been an important tailwind driving ETH higher.  

ETH/USD
ETH/USD rallies 80% from mid-July lows. Source: FX Empire

On 8 June, when Ethereum developers successfully implemented the Ropsten merge, Ethereum barely budged and ended up closing the day around 1% lower. Prices proceeded to decline by nearly 45% that month. Meanwhile, the successful merge of the Sepolia testnet on 7 July only saw ETH prices rally about 4% intra-day, though prices did then end that month over 55% higher.  

ETH/USD
Ethereum Ropsten and Sepolia merges didnt have much impact. Source: FX Empire

So what lessons can be drawn from ETH’s reaction to the last two testnet merges? Probably not that much. At the time of both of the last two testnet merges, macro developments were the main driver of price action in the cryptocurrency space, not Ethereum development fundamentals.  

ETH only really seemed to take notice of the upcoming Merge when senior developer Tim Beiko tentatively put forth an official date for the Mainnet merge to take place this September. Anything that pushes that date back may weigh on ETH in the short-term, such as any hiccups during the Goerli merge on Thursday.

A successful Goerli merge would likely be bullish for ETH. Combined with softer than expected US inflation figures for July that were just released, ETH prices could be in with a shot of hitting $2,000 before the week is out. 

ETH/USD
ETH/USD bulls eye move to $2,000. Source: FX Empire

Ethereum PoW Hard Fork a Threat to Ethereum 2.0? 

Tron founder and owner of crypto exchange Poloniex Exchange Justin Sun has thrown his backing behind a potential hard fork of Ethereum’s Mainnet that would create a new Ethereum blockchain that continues to run on PoW. A hard fork to preserve an Ethereum PoW blockchain is getting a lot of sympathy from the Ethereum mining industry, which generated $620 million in July alone.  

Sun pledged to donate some of the 1 million ETH tokens to the community and developers of any future Ethereum Proof-of-Work hard fork blockchain.  

Poloniex Exchange has already listed two potential forked ETH tokens, ETHS and ETHW. Several other exchanges have also listed the tokens. ETHW was last trading around $80. 

Ethereum co-founder Buterin has played down the impact of any potential PoW hard forks, saying at this week’s Korea Blockchain Week that he doesn’t “expect Ethereum to really be significantly harmed by another fork”. Moreover, Buterin said that he thinks “Ethereum Classic already has a superior community and a superior product for people kind of with those pro-proof-of-work values and preferences”.  

Ethereum Classic is actually the original Ethereum blockchain that never rectified a major hack back in 2016. Ethereum Classic will not be transitioning to PoS in September. ETC Cooperative, the non-profit that supports the development of the Ethereum Classic ecosystem, sent an open letter to well-known Chinese Bitcoin proponent Chandler Guo urging him not to press ahead with plans to create a new PoW fork of the Ethereum blockchain, which he has been campaigning for.  

In a big blow to any future new Ethereum PoW blockchain, the likes of Tether and Circle have thrown their backing behind the Ethereum merge to PoS.  

Any USDT and USDC tokens on a future PoW Ethereum blockchain would be irredeemable for dollars.  

About the Author

Joel Frank is an economics graduate from the University of Birmingham and has worked as a full-time financial market analyst since 2018. Joel specialises in the coverage of FX, equity, bond, commodity and crypto markets from both a fundamental and technical perspective.

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