In cryptoland, there’s nothing bigger happening this week — likely this year — than “The Merge,” as Ethereum switches from slow and power guzzling bitcoin-style mining to Ethereum 2.0, a cleaner, faster and hopefully better blockchain.
The No. 2 blockchain’s developers plan to flip the switch sometime between Tuesday (Sept. 13) and Friday (Sept. 16). It will make a lot of noise, even in mainstream news, and will be hailed as the Next Big Thing in crypto.
But what does it mean for payments?
The long-term answer is that it will make what is arguably the most important blockchain far more scalable — at 100,000 transactions per second (TPS), easily enough for payments — and by unplugging its country-size power requirements, it will remove one of the biggest obstacles to the adoption of blockchain technology by businesses understandably concerned about their environmental, social and governance (ESG) policies.
See also: Can Proof-of-Stake Solve Crypto’s ESG Problem?
Bitcoin may be better known and have twice as large a market capitalization, but it’s also got a four to five TPS limit and 10-minute block time that makes it difficult to use for payments at scale without a Layer 2 solution like the Lightning Network to add a little speed.
What is doesn’t have is Ethereum’s self-executing smart contracts, which automate complex processes that power all of decentralized finance (DeFi), being used for everything from cross-border transactions to automated insurance payouts.
Slow Down the Hype
But for the near term, the reality is that a lot of the hype is just that: hype. For all the hoopla, Ethereum 2.0 will remain more of a step than a sea change as far as payments are concerned.
That 100,000 TPS number has been batted around a lot for the past couple of years as the second-biggest upgrade coming with Ethereum 2.0, but the truth is that it isn’t happening the week — or even this year. Making that happen will require that addition of a technology called “sharding,” which basically divides the network up into a lot of pieces which are processed in parallel.
Learn more: Ethereum 2.0 Will Not Be Any Faster, Vitalik Buterin Said. But It Will Still Scale Massively
That was planned for the first quarter of 2023, but with the addition of Layer 2 technologies like Polygon, its importance — or at least urgency — has reportedly gone down a bit and it’s slipped to later in the year.
Related: Blockchain Basics Series: What is Polygon? An Ethereum Killer Hedges Its Bets
Between that and a decision not to speed up the 12-13 second block time, or wait between the addition of new blocks of transactions to the blockchain, it will still take a minute or more to finalize transactions.
How Green Is My Growth
One area where the Ethereum 2.0 Merge will make a difference right away is in public perception — and that’s no small matter.
A lot of pushback against using crypto for payments is based largely on bitcoin’s bad reputation, but Ethereum’s is just as bad. And it’s had an effect — back in January, the Mozilla Foundation stopped accepting crypto donations, and the Wikimedia Foundation followed suit in May. Even bitcoin fan Elon Musk ended Tesla’s acceptance of bitcoin payment for cars before it started due to pushback on this issue.
That gave greener and faster “Ethereum killer” blockchains a big step up that Ethereum will now be able to counter. But they are still far faster, both in TPS and block time — which is vital to payments, especially with FedNow and The Clearing House bringing real-time payments to reality.
And they are and will remain vastly cheaper. For all the talk that Ethereum’s transaction fees of several dollars to $20 or more would go down with Ethereum 2.0, the Ethereum Foundation has spent several months saying it isn’t going to happen.
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