UPDATE: The Merge was completed on September 15th, without a hitch.
The Big Merge is a planned transition — tentatively scheduled for September 14 — of Ethereum's Consensus Mechanism from "Proof of Work" to "Proof of Stake." In other words, it will replace its current energy-intensive mining protocol with the ETH-staked mechanism to secure the network.
The challenge for developers is the transition must occur while everything is up and running. This is kind of like replacing a jet engine while the aircraft is flying. In order to do this without requiring downtime, a second blockchain — called the Beacon Chain — was created in 2020 and has been running in parallel with the Mainnet.
The Beacon Chain is a blockchain — running in parallel, but fully independent of the Mainnet — that uses the "Proof of Stake" consensus mechanism. By keeping them isolated from each other, a solution can be perfected without risk to the Ethereum network. Since its launch, many have claimed the Beacon Chain to be an absolute success. But, this is software; and, software is the most complex device man has invented. By that, I mean, anything can happen.
Once completed, all future blocks on the Mainnet will be via the "Proof of Stake" consensus mechanism; all (hopefully) without any loss of transactions. However, keep in mind, this is not a new Ethereum version — that is, it's not really changing how the network functions. It is simply bringing the network inline with the original vision by upgrading the consensus mechanism.
The Effect on ETH Price
While Crypto prices have been volatile, the merge is expected to have an effect on the ETH price. There is optimism about the price leading up to the merge; but, then, it is expected to drop after the merge. If the merge goes well, then the price might go up. But, if the merge goes bad, it will definitely cause the price to go down.
This is because investors are trading ETH like corporate stocks; and this is bad. Investing in Crypto is more like investing in a startup. And, traditional startup equity has no liquidity — you don’t invest in a new business with the hope of flipping your shares a month later. However, many traders are doing exactly that, which is why the price is so volatile.
See: Investing in Cryptocurrency
Proof of Work vs. Proof of Stake
Thus, this is a massive undertaking. However, it isn't without criticism.
The "Proof of Work" mechanism has been used to secure the Mainnet since its initial launch in 2015. However, the plan to switch over to the "Proof of Stake" mechanism has been in the plans from the very start.
"Proof of Work" is the most popular consensus mechanism introduced by Bitcoin and used by a few other cryptocurrencies. The theory behind Proof of work is that a certain amount of effort required to post a transaction will reduce the risk of a single person or pool of people to take control of the system.
This mechanism requires miners to excerpt an amount of effort by being the first to find a magic number — referred to as a "nonce" — that is to be attached to a block of data prior to hashing it. Thereby, miners are competing against each other for the right to post a transaction and receive a Bitcoin as a reward. This process requires a lot of computing power and can take up to 10 minutes to complete.
With "Proof of Stake," blocks are verified using the machines of coin owners. The owners offer their coins as collateral for the chance to validate blocks. Coin owners with staked coins become "validators." Validators are randomly selected to validate the blocks.
Thus, in "Proof of Work," miners must buy expensive equipment; whereas, in "Proof of Stake," validators buy tokens. For this reason, Proof of Stake is more energy efficient than Proof of Work. And, therefore, is more eco-friendly.
Mining power in "Proof of Work" is all about the equipment. Lots of computers with fast, powerful CPUs have the biggest advantage.
Mining power in "Proof of Stake" depends on the amount of coins a validator is staking. Participants who stake more coins are more likely to be chosen to add new blocks.
Criticisms
Under "Proof of Stake," Miners will be replaced by Validators (or Stakers). So, what will happen to these miners and their expensive equipment? That's a multi-million dollar question. Thus, miners have a heavy investment (estimated to be around $19 billion) in their craft and many are resisting the merge by threatening to create a hard fork or jump over to ETH Classic.
However, there are critics that say "Proof of Stake" can lead to centralization.Validators have to lock up (or stake) ETH in order to qualify. Currently, this is set at 32 ETH (or, over $55k) — which means, only large investors can afford to be Validators.
But, the counter-argument is that only large investors can afford the equipment necessary to compete as a miner. But, if you decide to not be a validator, you can get your ETH back (albeit, it may be locked up for years without gaining interest). Whereas, a miner's equipment is all he is left — and, the equipment constantly needs to be upgraded.
Both mechanisms require the potential miner to invest a substantial amount of money to participate. "Proof of Stake" offers lower ongoing costs. It is less energy intensive and does not require constant upgrades to the mining setups that "Proof of Work" demands.
However, "Proof of Stake" requires the potential miner to invest in the network; whereas, "Proof of Work" requires the potential miner to invest in equipment, The "Proof of Stake" miner risks losing it all; while the "Proof of Work" miner still has their equipment they can use on other PoW blockchains.
Either way, centralization is a risk. Either too few people are willing to lock up $55k, or too few people can afford to buy and maintain the equipment necessary to compete for transaction validation.
But ultimately, supply and demand determines many of the costs to participate in both consensus mechanisms, and those costs will always fluctuate.