By Larry Wright
Introduction
Have you heard anything about the event known as the “Merge” that occurred in the month of September in the year 2022? To say the least, this was one of the pivotal moments that the well-known cryptocurrency industry had been waiting for. It took many months, if not years, for this event to really take place, and without a doubt, this has had a significant influence on all cryptocurrencies in general and Ethereum in particular.
The occurrence of this event, according to some who advocate for it, has the ability to greatly enhance the worth of the cryptocurrency market while also drastically changing the possibility of cryptocurrencies like bitcoin in the not-too-distant future. But what exactly is the Merge? What link does it have with Ethereum or maybe just digital currencies?
If you are a die-hard supporter of cryptocurrencies, I am confident that you are aware of the fact that the valuation of the cryptocurrency marketplace as a whole more than doubled at one point in time the year before. This is the single most crucial factor contributing to the growing popularity of cryptocurrency investments in the most recent decades.
It’s possible that the large infusion of wealth into digital currencies like Ethereum, Dogecoin, and others, together with the world’s big investors enticing towards it, is another great reason why more and more people are leaning toward it. The icing on the cake was the occurrence of the so-called Ethereum Merge, which provided this business with an additional boost.
Whether you are a seasonal crypto trader or maybe simply a curious market fan, I am confident that you must be pretty interested in learning all there is to know about this momentous occasion. This all-encompassing guide will discuss the Merge in great detail, including its consequences for cryptocurrency price and the ecosystem, as well as the negatives of the Merge. Keep reading!
What is the Ethereum Merge?
This update to Ethereum, which is being alluded to as “Merge,” modified the manner in which new cryptographic currency exchanges are recorded upon that ledger. In the past, the Ethereum platform, similar to the Bitcoin blockchain, operated using a concept known as proof-of-work. This paradigm requires nodes, which are individual workstations that are connected to a vast system, to compete with each other in order to solve complex mathematical calculations.
Those who are fortunate are, therefore, capable of mining the subsequent batch of trade and producing different currencies, thereby acquiring some cryptocurrencies as a reward for their work.
Due to the update, Ethereum is now operating on the proof-of-stake paradigm, which is a protocol that is friendlier to the ecosystem and uses much less power than the conventional PoW system. It involves a selection of algorithmic nodes that have an enormous stockpile of a network’s money. To put it another way, the “stake” that they have in networking is compensated more than the amount of computing power that is awarded under the method of proof-of-work.
The Eth Merge, which was formerly known as ETH 2.0, is an occurrence that happened over the course of many years and is meant to update the shared ledger of the database from proof-of-work to proof-of-stake. In the event that the Merge is accomplished and applied correctly, Ethereum will move to a system that is both economically and ecologically friendlier and much more productive.
We need to review the history of blockchain technology in order to have an enhanced understanding of the advantages of the Merge and so let’s throw some light on it.
To ensure that transactions of digital value were made without the involvement of financial institutions, the first blockchains, as well as cryptocurrencies like bitcoin, came into being. Ethereum’s capability of decentralized consensus was increased via the development of smart contracts, which made it possible for a broad assortment of applications to be implemented in domains like medical, gaming, health insurance, entertainment, and Web3.
Because of this change, the original idea of blockchain as a monetary computer system expanded to include social applications. Nevertheless, as the need for Ethereum increased, the underlying design of Ethereum began to exhibit indications of overcrowding. This would often result in gas prices of $500 per operation and would cause Ethereum to use as much power as a small island nation.
Because of the high costs involved, it wasn’t able to achieve the level of acceptance necessary to deliver decentralized alternatives on a societal magnitude. Yeah, some people adopted it and incorporated it, yet, its power consumption has always been massive.
The Ethereum platform has been in need of an update for some time, and the merging was an attempt to make it much more accessible and economical. The proof-of-work verification method used by Ethereum has already been substituted with a proof-of-stake approach since the platform’s development has been finished.
The PoS agreement method consumes a great deal less power than the PoW method does, rendering it more environmentally friendly and having a number of additional advantages as well.
The implementation mechanism and the consensus level, which were initially two distinct chains, will now be merged as part of the update in order to address sustainability concerns. In the past, both the Ethereum mainnet, also known as the PoW network, and the beacon loop, also known as the PoS sequence, would run in simultaneously.
The first phase of the merging, known as the Bellatrix version for the beacon network, was recently performed on September 6th. This assured that auditors are issuing upgraded beacon structure transactions in advance of the Merge to prevent communication issues later. Earlier on September 15th, the upgrade’s second and last phase, the Paris change to the implementation layer, was finished.
Thorough testing and widescale analysis on community sandboxes, including bug payouts and so much more, assisted in guaranteeing a successful transformation to proof-of-stake from proof-of-work despite the fact that the merging had a rocky deployment which was pretty predictable.
What are the Advantages of the Merge?
In comparison to proof-of-stake consensus systems, proof-of-work agreement techniques have many significant drawbacks. Because of these variations, the Ethereum platform will be subject to a variety of effects, a few of which could be instantaneous, while others will be observable in the future only.
Reduced Utilization of Available Power
The most noticeable effect right now is the significant decrease in the amount of power that the Ethereum platform needs to run. Because the proof-of-work system is based on raw strength computation, there is no other way to solve the theoretical issue except the energy-consuming method described above.
The sole option available to a miner who uses the proof-of-work algorithm is to enhance the number of computer capabilities at their disposal in order to improve their odds of being the first person to solve the problem and, as a result, manifest their own possibilities of being awarded incentives for doing so. Increased computational power results in an increase in the required amount of power required to process such complex algorithmic problems.
However, the Merge works as a turning point in this case as it plays a vital role in saving power to a great extent. As a matter of fact, it is anticipated that the Merge will lead to a lowering of the power consumption required to maintain the Ethereum smart contracts by an estimated 99.9 percent.
Yes, you read that right! Presently, the Eth consumes approximately 112 terawatts per hour per anum, and it is believed that the Merge would lower this stat down to just 0.04 terawatts per hour per anum. Isn’t that really amazing?
There are two further distinct advantages that come along with the decreased usage of electricity. To begin, the Ethereum blockchain would make significant strides toward being less hazardous to the natural ecology. Less power means less pollution and a healthier Earth to breathe in.
Hence, this would make the whole blockchain really sustainable and mitigate environmental risks to a great level. Furthermore, a significant portion of the expense that is connected with running the blockchain, namely, purchasing power generation, be substantially reduced.
Decreased power usage will result in better accessibility to participate in blockchain technology, which is the third advantage. Several states and municipalities, including New York, are considering legislation that would make it illegal to use proof-of-work consensus processes if they were not powered only by sustainable power.
Because of this, persons in countries that prohibit proof-of-work general agreements will be capable of running stations on the network after the move to proof-of-stake has been implemented.
A Decreased Degree of Centralization
Another impact, less consolidation and centralization, will be brought about as a result of the amalgamation of decreased power usage and enhanced accessibility. Proof-of-work blockchain technologies have a greater propensity to be more centralized than other types of blockchains.
This happens because labourers on proof-of-work blockchain technology frequently join collaborations in order to consolidate their supercomputing reserves and expand their probability of winning the algorithmic competition and the recompense that goes along with it. If the group is victorious in the competition, the prize money will be split amongst all of the participants of the collaboration.
Increased Accessibility
It is anticipated that the transition from proof-of-work to proof-of-stake would enhance accessibility for individuals to contribute to the Ethereum blockchain in more methods. Considering that in order to operate as a validator, you are required to stake 32 ETH, this could appear to be paradoxical. When contrasted with the expenditures involved with proof-of-work mineral extraction, nevertheless, the expense of staking is not very significant.
The implementation of proof-of-work algorithms involves complex computer gear, such as mining workstations that run several customized graphics processing elements, specialized cooling systems, and sophisticated networking of many rigs together. An individual who wants to utilize these devices must first choose a spot that has enough electrical contacts so that they may be powered.
On the other hand, the Ethereum proof-of-stake mechanism can be operated on almost all current computers, the majority of which can be bought for much less than one thousand dollars, do not necessitate specialist cooling, and are able to function utilizing electricity that is typically found in homes.
In addition, since proof-of-work requires a significant amount of energy, miners are often forced to locate their operations in regions where electricity is more affordable, for instance, in regions in which the government subsidizes the cost of electricity.
Hence, this would also reduce their relocation costs and make it much easier for them to work on their computers from the comforts of their own houses.
Reduces Barriers to Ethereum Blockchain
Proof-of-stake systems have reduced barriers to entry in terms of both financial and technological expertise too. In order to mine proof-of-work blocks, you need to run a number of different, sometimes complex, software components. In the meantime, the Ethereum proof-of-stake mechanism needs just three programmes, each of which demands even just a modest amount of technical expertise to run.
A consensus process based on proof of stake is often more straightforward for the ordinary individual to use. Hence, even if you are someone who doesn’t have so much expertise over the technical complications that surround the old PoW, PoS would make it really more manageable for you. You would still require training, yet, they won’t be a big ado for you.
What are the Dangers Associated with the Ethereum Merge?
Due to its status as the most extensive upgrade of any cryptocurrency’s blockchain infrastructure yet, the newly launched Ethereum Merge carries with it a number of potential dangers. The following is a run-down of some of the dangers posed by the Ethereum Merge:
Insecurity
As a consequence of the transition to PoS, networking proposers will be identified in advance, leaving them open to the possibility of a denial-of-service attack (DoS). For instance, if a malicious enemy is waiting to affect one of the subsequent blocks in the public ledger, it could endeavour a denial of service attack against the contemporary proposer’s node.
This would cause the current originator to end up losing all of his slots, leaving him in an all-loss state. There are presently no safeguards in place, apparently, despite the fact that there are numerous alternatives being developed to render the proposer’s choosing anonymized.
Centralization
Staking pools have gained a lot of popularity since the vast majority of individuals do not possess the minimum 32 Ether to stake, although they are able to join together with other people and generate the necessary funds towards becoming validators.
This might result in the amount of validating nodes being under the control of centralized organizations, which raises the possibility of censoring or capturing of government.
Frauds
A significant number of cryptocurrency apps have started referring to the combined and improved network as “ETH 2.” This is what has resulted in misunderstanding regarding whether there would be a completely new digital currency named ETH 2 (there isn’t going to be), and it renders holders of ETH vulnerable to fraud too.
However, there isn’t going to be an ETH 2 coin at all. Swindlers might attempt to profit from the advantages of this mistake by convincing users to trade in their existing ETH for “ETH 2,” although, in fact, they would’ve been plundering the customers’ Ether if they were successful.
Hence, there is an increased chance of fraud with Eth 2.0 as a lot of people are mistaking it as a newer Eth coin, whereas it’s just an update of the older one.
ETH Price Reduction
The valuation of Ether, and by extension, many of the leading cryptocurrencies that already have developed their ecosystems on the foundation of the Ethereum blockchain, might decline if the integration encounters problems. Nothing can be said with certainty about this, but this might happen in the near future.
Future of Ethereum Network
A number of improvements to the Ethereum network are in the works, of which The Merge became only the first and definitely the most significant.
The Shanghai improvement is the one that comes after this one. Following Shanghai, Ethereum is anticipated to pass through the “spike,” then perhaps the “verge,” and finally the “purge.” The term “surge” corresponds to the introduction of a technique called “sharding,” which is anticipated to enhance the maximal transactional management pace of Ethereum from 15 to 20 transactions per second.
Then, a statistical proof called “Merkle trees” is considered for execution; this will allow cryptocurrency nodes to function without obtaining the complete chain’s information. Last but not least, the historical information on the chain will be removed when the cleansing is completed.
When used together, the above three enhancements will result in a blockchain that is far more compact, user-friendly, and swifter. The Ethereum platform has undergone a significant transformation as a result of The Merge, which is the most significant alteration to its core functioning ever seen in the annals of blockchain technology. The Merge will very certainly have unforeseen and far-reaching repercussions. Just a matter of time until we unfold each one of them.