The Ethereum merger solved one major crypto problem. But mainstream adoption won’t happen overnight

Developers had gathered from all corners of the world to push forward the most ambitious project in blockchain history – one that many in the crypto world considered impossible. The plan involved preparing for an upgrade to Ethereum that, if they could pull it off, would wipe out more than 99% of the popular blockchain’s future carbon footprint, while laying the groundwork for bringing crypto into the mainstream. The project will be known simply as the Merger.

Almost a year later, on September 15, the merger became a reality. What that will mean for the future of Ethereum, and for how business uses the blockchain, will be debated for months to come.

For those familiar with Ethereum’s history, the image of ambitious developers crammed into a spartan room is apt. Eight years ago, an equally frenzied group gathered in a mattress-strewn house in Zug, Switzerland, to turn Ethereum—an idea that was still little more than a white paper written by then-teenage genius Vitalik Buterin, its creator—into a real world application. The Zug crew eventually succeeded, and Ethereum is today the most popular blockchain in the world both in terms of applications and user numbers.

The challenge in Greece was of a different order. Despite its success, Ethereum has been dogged by criticism that transaction speeds are too slow and that the data processing process is an ecological disaster. The environmental criticism in particular threatens to overshadow the achievements that have made Ethereum the pulse of the crypto ecosystem.

While casual observers often lump Ethereum together with Bitcoin, the two blockchains are very different. Ethereum has roughly half the market capitalization of its counterpart, but its versatility and technological potential far surpasses Bitcoin’s. This is primarily due to its ability to run smart contracts, collections of code that execute a set of instructions on the blockchain, which has fueled the field of decentralized finance, or DeFi. Ethereum’s smart contracts also underpin a wealth of other tools and applications, including NFTs, games, and new forms of music royalties—the kind of projects that generate excitement outside the die-hard crypto community.

But Ethereum was also built to rely on the same record-keeping model as Bitcoin – a “proof-of-work” system that provides rewards to those who deploy raw computing power to add blocks to the blockchain. That process has proven to be incredibly energy-intensive. A recent academic study found that Bitcoin “mining” consumes over 96 terawatt-hours of electricity per year – more than the entire Philippines.

All of this has led critics to blast Ethereum as a major polluter and, in some cases, to seek out newer blockchains like Solana that can execute smart contracts without sapping energy. The problem has also concerned Ethereum developers, who have been talking about making their precious creation greener. Their long-planned solution relied on “proof of stake” – a newer technology that relies on a trusted network of validators to verify transactions rather than brute computer power. Shifting to proof of stake would mean a radical reduction in energy use, but also involve a high-stakes technological gambit many predicted would fail.

For the developers who criss-crossed the world for Ethereum hackathons, the merger — so named because it involves merging a proof-of-stake network with the Ethereum blockchain — was overwhelming. Parithosh Jayanthi was one of those who gathered in the hotel basement last October. “[It’s] the greatest impact any of us individually can have to help [prevent] climate change,” shared Jayanthi Fortuneadding that he saw it as a way to offset “probably the carbon budget of my lifetime … which is crazy to think about.”

Skeptics point out that even after the merger, Ethereum faces major obstacles to widespread adoption. Molly White, a prominent crypto critic and software engineer, says the merger could spur environmentally-conscious companies to try Ethereum, but won’t address complaints that it’s slow and that its “gas fees” (transaction fees, by normies) are too high. “If there was something that was changing, then I can see that changing the narrative, but it’s mostly not going to do that,” says White.

White and other critics still see Ethereum and other blockchains primarily as tools for financial speculation. (On that front, the merger could be a disappointment. The change has reduced new issuance of Ether tokens, which could lead to a future price jump, but even some boosters say it will be largely irrelevant to Ether’s market value.) Others note that the merger will not make Ethereum easier to use for ordinary people. Meanwhile, Ethereum and other popular blockchains are stuck in a regulatory quagmire over whether their tokens are illegal securities, a controversy that has made some businesses reluctant to start working with the platforms.

Ethereum supporters, undaunted, see the merger as a “critical precursor” to making Ethereum cheaper, faster and more user-friendly. Mainstream banks like Bank of America and others have also predicted that the merger will lead to more mainstream adoption of Ethereum. It will include investors who hope to profit from new investment opportunities after the merger, but also companies who hope to use it to underpin new technological applications and to execute contracts and transactions in non-crypto assets and industries such as real estate, finance and retail.

Such predictions will soon be tested. Still, the developers were thrilled to have successfully completed the proof-of-stake transition on September 15th. Although it was past 3am for many when the official merger took place, the Ethereum community showed no sign of exhaustion, celebrating on Zoom or partying in person in Berlin. Only time will tell if the merger catalyzes a long-lasting golden age for Ethereum.

This article appears in the October/November 2022 issue of Fortune with the headline “Flittering towards the mainstream”.