We’re officially in the Ethereum 2.0 era!
The crypto community is abuzz about the event expected to reduce the impact of crypto mining on the environment and enhance Ethereum’s utility.
Ethereum, the largest blockchain besides Bitcoin, completed the long-awaited upgrade. Dubbed the Merge, the event took place on September 15 and aims to switch the blockchain to more energy-efficient transactions validating the method, also known as proof-of-stake consensus.
Crypto specialists compare the upgrade to the transition of the internet from dial-up modems to fiber optics that enable it to perform multiple functions, like music streaming and online storage.
Before diving into how Merge changes the crypto environment, it’s essential to answer several questions.
What is Ethereum?
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We mentioned that a Merge is an event that mainly impacts Ethereum, so let’s discuss a little bit about this digital currency. Ethereum is a decentralized and publicly available blockchain that records and verifies all its transactions on its native network. Vitalik Buterin created the platform in 2013 in response to Bitcoin’s launch to provide crypto users with more functionalities, like smart contracts. Ethereum registered a boom in the crypto market recently, and its market value reached historic heights. The Ethereum Foundation revealed that there are over 71 million crypto wallets on its blockchain at present.
What is the Merge?
In December 2020, Ethereum started running on two separate blockchains (one using the proof-of-work and one using the proof-of-stake method) to allow developers to test the new consensus and improve it before transitioning the entire network. The Merge changed how transactions are completed on the Ethereum blockchain and combined the two parallel blockchains into a single one.
Before September 15, 2022, Ethereum used a proof-of-work model, similar to Bitcoin, that required using a network made from node-computers that solve complex maths problems. The ones that solved them the fastest were mining new blocks and creating new coins.
The Merge allowed Ethereum to switch to a proof-of-stake, eco-friendly, energy-efficient model. This new method implies that nodes be selected using an algorithm that favors the nodes that hold more of the network’s currency.
What is proof of stake?
The proof-of-stake method requires organizations and individuals to act as validators, Staking ETH as collateral to secure the network and validate transactions. The blockchain incentives the validators with rewards (ETH tokens). The transition requires Ethereum users to make a significant investment to authenticate transactions.
How does the Merge impact crypto investors?
The Merge didn’t increase the speed of the network or decrease the transaction costs immediately, but it promised to provide the investors with a series of benefits in the long run. Even if the outcome isn’t certain, Ethereum developers state that the Merge could be bullish down the road because it sets the groundwork for future improvements in ecosystem development, speed, and fees.
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Suppose the event allows Ethereum to complete transactions faster and cut down on fees. In that case, it could attract more users, which could impact the value of ether (Ethereum’s native token, used for transactions within the ecosystem). Suppose the number of Ethereum buyers increases; the ether supplies go down, and the value of individual tokens increases, which is good news for investors.
Looking at the Ethereum price today, we notice no discernible fluctuations in its value. The Merge took place at a moment when Ethereum was mature enough to host smart contracts, store non-fungible tokens, handle financial payments, and trade digital tokens. The upgrade could streamline the blockchain’s processes to add more data and make transactions faster. Ethereum could complete 15 transactions per second before the Merge, and it’s expected to handle over 100,000 transactions per second after.
Will the Merge reduce carbon emissions?
No third party (company, bank, or another organization) verifies the transactions from the blockchain network. It uses a network of computers competing to solve complex maths problems in exchange for a reward. The proof-of-work process requires thousands of computers to verify transactions on any blockchain. And as expected, these servers need a vast amount of power to function and produce blockchains. For example, before the Merge, the Ethereum blockchain used around 112 terawatt hours of electricity annually, an amount equal to that necessary to power the Netherlands. Using so much energy released 53 metric tons of harmful carbon emissions into the atmosphere, an amount similar to that of Singapore (in a year).
The Merge switched the blockchain to a proof-of-state method that reduces energy consumption to 99.9%. This alternative consensus requires validators to put a share of coins in order to be allowed to verify transactions and record them on the block. This method uses fewer servers, and therefore Ethereum creation requires fewer terawatt-hours.
Does the Merge make it safer to use digital coins?
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Developers state that the Merge will likely make it safer to use digital coins. As mentioned before, Ethereum has extensively run two different versions of the blockchain to ensure the proof-of-stake consensus works flawlessly. They used the Beacon version to test its capabilities and the Mainnet to run the business as usual.
However, during the test period, hackers had access to twice as many entry points in the system, suppose they wanted to attack Ethereum. There were no records of successful attacks during the test period. Now that the Merge is completed, Ethereum developers deleted the Mainnet and moved all financial transactions to Beacon. Now that the blockchain uses a single consensus and has a smaller number of validators, the odds of hackers breaching the ecosystem are even lower than before.
However, it’s important to mention that the changes have not yet proven to boost account security, but Ethereum developers will most likely test this functionality. They also posted warnings on the official website to educate users on protecting themselves from hacking attempts.
Ethereum might be the star of the Merge, but the event impacts the entire crypto industry; hence we expect all digital currencies to suffer from its employment.