What is “The Merge” and what does it mean for fashion NFTs?

This month, an event is finally scheduled to take place—a fundamental change to how one of the most popular blockchains works, rumored for so long that some doubted it could ever happen.

If carried out successfully, it will address the aspect of NFTs that is arguably the most difficult for fashion brands to justify: the extraordinary amounts of energy used by the Ethereum blockchain on which most NFT collections are built, a fact that has been impossible for brands to deal with. their publicized efforts to reduce their energy and carbon footprint as the world faces a climate crisis.

What is the “merger”?

Tentatively scheduled to start on or around September 15, the “merger” will see the Ethereum blockchain transition from its existing proof-of-work mechanism to a more efficient proof-of-stake system. Currently, whenever there is a transaction on Ethereum, computers compete to validate it by racing against each other to solve complex equations, which require enormous processing power but provide a reward to the winner.

The new system will dispense with this competition and instead involve investors “putting” ether – the native currency of the Ethereum blockchain – into a pool, and participating in a lottery that will select one to validate the transaction and claim the reward.

Why is it important to fashion?

The amount of electricity secure blockchains like Ethereum and Bitcoin devour is notoriously huge. Researchers have estimated that, as of July 2021, Ethereum used more electricity annually than Romania and slightly less than Switzerland. Its annual carbon emissions were just below Tunisia’s. (Bitcoin’s impact was even greater.)

The merger will reduce energy use by more than 99 percent.

For the many fashion companies with Ethereum-based NFTs, such as Adidas, Nike and Gucci, there is a lot at stake for their sustainability credentials.

Adidas, for example, topped a list calling out the environmental impact of fashion NFT projects due to the release of 30,000 “Into the Metaverse” NFTs last year, far more than the typical NFT release by fashion brands. At the same time, the sports giant says it is “committed to decarbonising by reducing our absolute energy consumption and greenhouse gas emissions.”

Adidas said in a statement that it has tried to mitigate the impact by monitoring emissions, taking steps such as minimizing unnecessary and energy-intensive blockchain transactions and reinvesting revenue in non-profit organizations “focused on promoting sustainability in the metaverse.” It added that the carbon emissions related to web3 activities represent about 0.05 percent of its total carbon footprint and that it continues to seek to reduce the figure.

How bad are today’s NFT projects for the environment?

It is difficult to measure the effect of an NFT collection. Because of the way blockchains work, there is not a simple one-to-one relationship between the number of transactions and total energy use, as noted by the University of Cambridge.

One argument is that it is more accurate to think of an individual NFT as a passenger on a train rather than a car on the road. Each passenger contributes to the total demand that keeps the train running, but it is difficult to calculate how large a share of the train’s energy use and emissions a single passenger owns. Still, there is no doubt that Ethereum uses a lot of electricity from carbon-emitting grids, leading to criticism of the fashion’s dive into NFTs.

Some brands have tried to avoid these problems by using other blockchains. Gap’s NFT collection earlier this year was built on the Tezos blockchain, which operates on a proof-of-stake mechanism. Gap noted that it is more energy efficient than the labor-intensive systems that underlie Ethereum and Bitcoin.

Why don’t more NFT projects use other blockchains?

Although it has given some market share to rivals this year, Ethereum remains by far the blockchain of choice for NFT projects. Since it was published in 2015 with the aim of providing a more flexible network than Bitcoin, it has become the blockchain of choice for developers building all kinds of applications beyond just currencies. Today, Ethereum-based NFTs tend to command higher selling prices and are supported by the largest NFT marketplaces, making them attractive to brands and their customers, who may want to resell their digital assets one day.

In theory, the merger would allow Ethereum to continue as the blockchain for many NFT projects, while the creators behind them claim to use an energy-efficient infrastructure. However, it is a complex and difficult process. If something goes wrong, all applications running on Ethereum can experience major disruptions.

“It’s flying the jet and changing the engine in the sky,” said one critic New York Times.

But those monitoring the Ethereum blockchain clearly feel the risk is worth it.

Will the merger do anything other than reduce energy use?

The promised benefits don’t end with Ethereum being less of an energy hog. It should also make Ethereum more scalable and lay the groundwork for updates to make it faster. (Don’t expect noticeable changes in performance right away.) The group most vocally against the merger are generally the Ethereum “miners” who dropped large sums on supercharged computers that have been running the current proof-of-work system.

The idea for the merger came up even before Ethereum’s 2015 debut, and programmers have now been working in earnest for years to make it happen. Despite many delays, it now appears to be ready to happen. If it really does, the dramatic energy savings will be at least one bright spot in the struggling crypto market and likely give fashion companies yet another reason to believe there is a long-term future for their web3 ambitions.