15th September 2022 marks a new phase for the world’s second-largest blockchain. Ethereum finally switches from its old consensus mechanism to an environmentally friendly one. It took the developers more than 8 years to successfully transition to proof-of-stake. This has made Ethereum a sustainable cryptocurrency over the infamous Bitcoin.
The merge is a celebratory moment that marks the beginning of a new era for Ethereum. However, let’s see whether it’s positive or negative in the long run. The creator, Vitalik Buterin, isn’t sure how this merge will impact the blockchain’s performance. It can go any way at the moment.
Before we talk about whether Ethereum merge will boost the confidence of crypto enthusiasts or not, let’s take a look at the know-how.
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What is Ethereum Merge?
Ethereum merge initially gained popularity by the name “Ethereum 2.0.” The blockchain followed proof-of-work like Bitcoin. This consensus mechanism worked well for the Bitcoin network but wasn’t environmentally friendly. It requires high computational power to simply process a transaction in the blockchain.
So, proof-of-work wasn’t something advisable in the long run. That’s why we have seen developers of Ethereum focusing more on making necessary changes. This may encourage people to take the blockchain more seriously and invest in upcoming projects.
Mining Eth is now more eco-friendly. That’s because Ethereum 2.0 uses proof-of-stake to verify transactions, which is quicker. However, if you were hoping the gas fee would disappear after the merge, that’s not the case.
This upgrade does not affect the transaction fee because it’s the demand of the network’s capacity. They may improve this aspect in the future, but it’s not targeted in this specific merge.
Understanding The Ethereum Blockchain Mechanism
Before we get into the itsy-bitsy details of how the Ethereum blockchain works, let’s cover the basics. To begin with, you need to understand the reason why people use blockchains. The thing that intrigues users is how there is no central governing authority. The ledger is maintained by an untampered code.
That’s not the case with traditional financial institutions. Thus, one can say blockchain isn’t disturbed by any external pressures. All the power is dispersed in the hands of the people – full autonomy. The self-sustaining mechanism withstands inflation and recession, unlike other investments.
Ethereum has built on the consensus mechanism, proof of work after Bitcoin. Both require heavy computing power to solve complex puzzles for some coins. This complexity makes it harder for hackers to temper the untouchable code. The popular saying is that when quantum computers will be common, mining bitcoin will be a piece of cake.
However, till then, miners have set up huge mining rigs for small percentages of the desired cryptocurrency. The major drawback of this model is how it uses more energy than a single country. Imagine a machine trying to mine Bitcoin using the same power as millions of people.
Hence, it defeats the purpose of digital currencies. We are sacrificing our environment for chump change. So, environmentalists have raised concerns about the environmental impact of mining. That’s why we see developers working tirelessly to switch the Ethereum network from proof-of-work to proof-of-stake.
Is the Ethereum Merge Positive?
Ethereum merge might be a risky move, but there are many positives. Here are a couple:
Since Ethereum no longer uses proof-of-work, miners don’t need to run computers around the clock. The financial incentive to run mine cryptocurrencies is slightly lower. This automatically lowers the consumption of electricity.
Moving towards environmental practices will help lower carbon emissions. Research from the Ethereum Foundation supports this claim as there will be a significant drop of 99% in network usage. It can help fight climate change in an effective manner.
Many investors investigate the environmental impact of the projects they’re interested in. So, before they consider becoming stakeholders, they ask for a thorough report disclosing the carbon footprint. This switch to proof-of-stake will encourage more people to invest in an eco-friendly blockchain model.
Proof-of-stake promises high security for users. Developers believe it will fortify the network and protect the blockchain against any hacking attempts. This change confirms that hackers would need more than $11 billion to rewrite half the network code. That’s nearly impossible for a couple of hackers, considering how complicated the task has become after switching consensus mechanisms.
Are There Risks?
A lot is at stake with the Ethereum merge. Nearly $50 billion is on the line if it’s not successful in the long run. Ethereum blockchain technology has become one of the primary networks developers code on. This means they are using it as the foundation for new apps and projects.
Millions or even billions of dollars can be lost due to a minor inconvenience. However, the creator and developers of Ethereum are constantly reassuring investors and other stakeholders. Many crypto gurus predict some resistance to the merge.
It’s no longer an Ethereum Classic, which brings the question of censorship. Let’s see whether this decentralized system can protect the anonymity of its users or not. Only time will tell about the pros and cons of proof-of-stake.
Long-term or Short-term Impact?
Ethereum is making headlines for its long-term impacts. People are skeptical about the short-term effects at the moment, but there isn’t all doom and gloom. The merger promises a secure future where the environment is a top priority. However, the developers of the Ethereum network have a long way to go. They still haven’t addressed the issue of the rising gas fees. Even though more structural changes are in order, Ethereum 2.0 has satisfied environmentalists.
Featured Image: Bloomberg