The Ethereum merge has occurred, opening a new era for the cryptocurrency
The historic change represented by the merge of ethereum, sets aside the miners who had previously driven the blockchain, promising huge benefits for the environment.
The update, which ends the network’s dependence on the energy-intensive process of cryptocurrency mining, has been closely watched by investors, enthusiasts, and skeptics alike for the impact it is expected to have on the blockchain industry as a whole. When the Merge officially kicked off, more than 41,000 people were tuned in on YouTube for an “Ethereum Mainnet Merge Viewing Party.”
They watched with bated breath as key metrics suggested that Ethereum’s core systems remained intact. After about 15 long minutes, the merger officially ended, meaning it can be declared a success. The price of ETH remained essentially unchanged after the merger.
The massive redesign known as the ethereum merge finally happened, moving, after years of development and delays, to a much more energy-efficient system.
It was no small feat to replace one method of blockchain operation, known as proof-of-work, with another, called proof-of-stake. “The metaphor I use is the idea of replacing the engine of a running car,” Justin Drake said.
The payoff is potentially gigantic. Ethereum is now expected to use about 99.9 percent less energy. This is the best news about the ethereum merge.
Ethereum developers say the upgrade will make the network more secure and scalable.
The idea that Ethereum would eventually transition to proof-of-stake was there from the beginning. But the transition was a complicated technical effort that was expected from the ethereum merge.
The complexity of the upgrade was compounded by the fact that it may be one of the largest open-source software efforts in history, requiring the coordination of dozens of teams and dozens of individual researchers, developers and volunteers.
With ethereum merge, goodbye to miners
In 2008, Bitcoin introduced the world to the idea of a decentralized ledger, a single immutable record of transactions that computers around the world could view, edit, and trust without the need for intermediaries. We have written about this in many of our articles and reiterate it after the ethereum merge.
Ethereum, introduced in 2015, expanded the core concepts of Bitcoin with smart contracts, which are computer programs that use the blockchain as a global supercomputer, recording data on its network.
This innovation has been the essential ingredient of decentralized finance (DeFi) and NFTs, the main catalysts of the most recent cryptocurrency boom. It will remain a feature even after the ethereum merge.
The merger eliminates Ethereum’s proof-of-work system, in which cryptocurrency miners competed to write transactions to its ledger, and earn rewards for doing so, by solving cryptographic puzzles.
Most cryptocurrency mining today takes place in “farms,” although they might be more aptly described as factories. Imagine huge warehouses with rows of computers stacked on top of each other like book shelves in a university library. Here each computer is hot to the touch as it strives to produce cryptocurrency. After the merge of ethereum this equipment will likely become obsolete and the miners thus see their investments fade away. This is the consequence of the ethereum merge.
This system, which was first introduced by Bitcoin, caused ethereum to consume so much energy and is responsible for the blockchain industry’s reputation as an environmental menace.
After ethereum merge welcomes stakers
Ethereum’s new proof-of-stake system completely eliminates mining. This is the big news of the ethereum merge.
Miners are replaced by validators, people who ” staker” at least 32 ETH by sending them to an address on the Ethereum network where they cannot be bought or sold.
These staked ETH tokens act like lottery tickets: The more ETH staked by a validator, the more likely it is that one of its tickets will be drawn, granting it the ability to write a “block” of transactions to Ethereum’s digital ledger.
Ethereum introduced a proof-of-stake network in 2020, called the Beacon Chain, but until the Merge it was just a staging area for validators to prepare for the transition. Ethereum’s transition to proof-of-stake involved merging the Beacon Chain with Ethereum’s core network.
According to Beiko, the energy consumption of proof-of-stake is “not even a rounding error in terms of environmental impact.”
Proof-of-stake is like running an application on the computer, such as running Google Chrome, Slack, Zoom or Netflix. Of course, the computer plugs into the wall and uses electricity to run. But no one thinks about the environmental impact of running Netflix, right?
New incentives promised after ethereum merge
Ethereum’s new system introduces a new set of incentives for people running these computers to follow the written rules, thus securing the ledger from any unwanted tampering.
Proof-of-work is a mechanism by which physical resources are taken and converted into security for the network. If you want the network to be more secure, you need more physical resources.
In proof-of-stake, on the other hand, financial resources are used to convert them into security. This is the most important feature since ethereum merge.
Although Ethereum has thousands of individual miners operating and protecting its proof-of-work network, the computers of only three miner pools dominate most of the network hashrate, a measure of the collective computing power of all miners.
If a few large Ethereum mining companies agreed to hoard the majority of the network’s hashrate, they would be able to perform a so-called 51 percent attack, making it difficult or impossible for anyone else to update the ledger (ledger).
In proof-of-stake, the amount of ETH pointed at (not the amount of energy spent) determines control of the network. Proponents of proof-of-stake argue that this makes attacks more costly and self-destructive: attackers can have their ETH stakes cut off or reduced as punishment for trying to damage the network.
Not everyone believes the enthusiasm for proof-of-stake. There are no signs that Bitcoin, for example, will ever abandon proof-of-work, which proponents insist is the most proven and secure system.
And although control of the Ethereum network will no longer be concentrated in the hands of a few publicly traded mining syndicates, critics insist that the old powerhouses will only be replaced by new ones. Lido, a kind of community-run validator collective, controls more than 30 percent of Ethereum’s proof-of-stake chain shares.
Coinbase, Kraken, and Binance, three of the largest cryptocurrency exchanges whose reviews you can read, own another 30 percent of Ethereum’s network shares.
Skepticism about proof-of-stake prompted Chandler Guo, a prominent cryptocurrency miner, to announce before the merger that he would launch a fork of Ethereum’s old proof-of-work chain, a clone of the Ethereum blockchain that works with the old miner-based mechanism.
Ethereum’s core developers have generally derided the fork of the proof-of-work chain as sideshows and scams, but Guo’s “ETHPOW” effort and others like it have gained modest traction in some corners of the crypto community. We’ll be watching to see what happens next.