The cryptocurrency community is talking a lot about “the Merge,” a significant update to the Ethereum blockchain that could be a turning point in the growing world of digital currencies.
Crypto enthusiasts say that the Merge will make cryptocurrency mining much better for the environment and make it more useful as a way to do financial transactions and other things.
But what is the Merge, and how could it change the future of cryptocurrencies?
What’s The Merge?
Vitalik Buterin, a Canadian computer programmer, created Ethereum in 2015.
It is a blockchain, or a digital ledger, that is used when investors buy Ether. It is the second most popular blockchain after the Bitcoin network.
There are already more than 71 million cryptocurrency wallets on the Ethereum blockchain, according to the Ethereum Foundation, a group of engineers that now manage the network.
Think of the Merge as the 2.0 version of Ethereum, or the next generation. The people who work on Ethereum have been thinking about and testing a new way to do transactions for almost two years. They say it’s finally ready for prime time.
Simply put, the goal of the Merge is to reduce the number of people and computers needed to add another data block to the Ethereum network.
The change is called the Merge because there is currently more than one way to make a new data block. They say developers want to combine these existing methods into a single process that is more secure and better for the environment.
Once the Merge is done, the Ethereum mainnet will switch from proof of work to proof of stake, which is how the Beacon Chain works.
What’s Proof Of Stake?
Proof of stake (PoS) is a type of consensus mechanism that is different from the traditional proof-of-work (PoW) mechanism.
What’s A Consensus Mechanism?
A consensus mechanism is how Ethereum or other blockchains decide if a transaction posted to their network is legitimate. It’s how a blockchain makes decisions on its own.
Ethereum is a database made up of nodes, which are computers that run software to check blocks and the transaction data they contain.
Most nodes must agree to reach a consensus on the network and make a decision, and how they do that depends on which consensus mechanism they choose.
How Does Proof Of Stake Work?
When Ethereum moves to a proof-of-stake consensus mechanism after the Merge, the network will rely on trusted entities called validators to check transactions and add new blocks to the blockchain.
When a new block is added, which will happen approximately every 12 seconds after the Merge, a validator will be chosen at random.
Anyone can apply to be a validator by putting down 32 Ethereum (about $61,000 at prices in mid-August), a sum meant to ensure everyone has a stake in the network’s success, and by running the most recent software.
The Ethereum Foundation says that potential validators will be added to an “activation queue,” limiting how quickly new validators can join the network.
Once a validator is “activated,” it can review and approve new blocks that the Ethereum network wants to add to its blockchain.
Validators will get Ether as a reward for making sure the network is safe.
The 32 Ether put up as collateral is a big reason for validators to act in a good way, but there are also punishments for validators who are not good at their jobs or try to do harm. In other words, they can lose some or all of their deposit as a punishment.
Even though the Merge hasn’t happened yet, more than 415,000 validators are already on the Beacon Chain.
What’s Proof Of Work?
Proof of work is another consensus mechanism the Ethereum mainnet has reached agreements since the beginning.
It is still used by other older blockchains, most notably Bitcoin.
The “work” in “proof of work” comes from mining, which uses energy as computing power.
Even though those who like proof of work (primarily Bitcoiners) say it’s the most secure method, the process is awful for the environment.
This is a big reason why Ethereum switched to proof of stake.
How Will The Merge Reduce Carbon Emissions?
A bank, credit card company, or any third party does not check transactions in a blockchain network.
Instead, it uses a network of computers that compete to solve complex problems for tokens.
“Proof of work” requires thousands of computers to check transactions on the Ethereum blockchain.
All of those powerful server computers working together need a lot of electricity.
The annual energy consumption of the Ethereum blockchain is around 112 terawatt hours, or nearly the same as that required to power the Netherlands.
This amount of energy use puts about 53 metric tons of harmful carbon into the air every year, which is the same amount that Singapore makes in a year.
The Merge removes the “proof-of-work” system and replaces it with “proof of stake.”
In that system, “validators,” who are people who own cryptocurrency, check transactions and add them to a new block.
Because fewer people need to use their computers to verify transactions with proof of stake, fewer terawatt-hours are burned.
Developers say that using proof-of-stake, the Merge will cut the energy used by the Ethereum blockchain by 99.9%.
Should I Do Anything With My Ether?
No. Don’t believe anyone who tells you otherwise.
As the Ethereum Foundation says:
“As a user or holder of ETH or any other digital asset on Ethereum, as well as non–node-operating stakers, you do not need to do anything with your funds or wallet before the Merge.
“Any funds held in your wallet before the Merge will still be accessible after the Merge. No action is required to upgrade on your part.
“As we approach the merge of Ethereum mainnet, you should be on high alert for scams trying to take advantage of users during this transition.”
Some people who don’t like the merger might try to go their own way and make their own projects and versions of Ethereum, but nothing like that will ever be Ethereum.
For example, a group of miners are planning an Ethereum hard fork after the Merge.
They want to make what they call “ETHPoW” so they can keep making money from the proof-of-work chain.
But this project is not related to Ethereum, even though it sounds like ETH and has a bit of Ethereum in its name. If it works, it will have its own token and applications.
Alexander Shunnarah Trial Attorneys
The legal team at Alexander Shunnarah Trial Attorneys releases recent news posts to keep readers up to date on important stories. Check our recent news blog to stay updated. If you need legal help after an injury, contact our personal injury lawyers for a free consultation.
References:
https://www.cbsnews.com/news/ethereum-merge-blockchain-cbs-news-explains/
https://fortune.com/2022/08/19/everything-to-know-about-the-ethereum-merge/
