After years of development and delay, the enormous Ethereum redesign known as the Merge has finally taken place, transferring the digital machinery at the center of the second-largest cryptocurrency by market value to a system that uses a great deal less energy.
It was no easy task to switch from proof-of-work to proof-of-stake, two different ways to operate a blockchain. Before the Merge took place, Justin Drake, a researcher at the nonprofit Ethereum Foundation, told CoinDesk, "The metaphor that I use is this idea of switching out an engine from a running car".
The potential reward is enormous. Now, Ethereum should use 99.9% less energy. According to one estimation, it appears as though Finland's electricity grid has abruptly been turned off.
The network, which supports a $60 billion ecosystem of cryptocurrency exchanges, lending organizations, non-fungible token (NFT) marketplaces, and other apps, will become more secure and scalable, according to Ethereum's developers.
More than 41,000 individuals were watching an "Ethereum Mainnet Merge Viewing Party" on YouTube when the Merge began in earnest at 6:43 a.m. UTC. They waited in anticipation as important numbers trickled in, showing that Ethereum's fundamental systems had held up. The Merge finally concluded after roughly 15 arduous minutes, at which point it was deemed successful. Behind the Merge, the price of ETH, the second-largest cryptocurrency after bitcoin (BTC) with a current market value of close to $200 billion, was basically unchanged.
Crypto investors, enthusiasts, and skeptics have been eagerly watching the update, which reduces the network's dependency on the resource-intensive process of cryptocurrency mining, for the effects it is anticipated to have on the larger blockchain sector.
The Dallas Mavericks basketball team's billionaire owner and investor, Mark Cuban, told CoinDesk that he would be "watching [the Merge] with curiosity like everyone else," noting that it would cause ETH, the network's native token, to deflate.
From the beginning, it was anticipated that Ethereum will eventually convert to proof-of-stake. However, the transition required a difficult technological effort, one that was so dangerous that many questioned whether it would even succeed.
Drake admitted, "There's a part of me that hasn't fully comprehended that this is actually occurring." I've conditioned myself to just anticipate it happening in the future, so in a way, I'm in denial.
The fact that the update may have been one of the biggest open-source software projects in history and required collaboration between dozens of teams and hundreds of individual academics, developers, and volunteers added to its complexity.
"I think the Merge can actually persuade those individuals who were intrigued in Ethereum, but dubious of the environmental consequences, to come and try with it," said Tim Beiko, an Ethereum Foundation developer who was instrumental in organizing the upgrade.
💻Table of Contents:
Goodbye, miners
A decentralized ledger, or a single, unchangeable record of transactions that computers around the world may read edit, and trust without the need for middlemen, was first proposed by Bitcoin in 2008.
With smart contracts or computer programs that effectively exploit the blockchain as a global supercomputer, recording data onto its network, Ethereum, announced in 2015, built upon the fundamental ideas of Bitcoin. Decentralized financing (DeFi) and NFTs, the key drivers of the most recent crypto bubble, were made possible by this breakthrough.
As a result of The Merge, Ethereum's proof-of-work system, which included crypto miners competing to add transactions to its ledger and earning incentives for doing so by cracking codes, is no longer in use.
The majority of cryptocurrency mining currently takes place on "farms," but factories might be a better description. Imagine huge warehouses filled with rows of computers stacked on top of one another like bookcases in a university library, each one scorching to the touch from the strain of producing cryptocurrency.
This method, which was invented by Bitcoin, is what made Ethereum consume so much energy and is to blame for the blockchain industry's image as a threat to the environment.
Ben Edgington, a product leader at the Ethereum research and development company ConsenSys, said, "My daughter and I discussed NFTs a few months ago." When I very carelessly brought up some NFT initiatives at the dinner table, she yelled at me, "How can you boil the oceans with this nonsense? This is awful. I find it hard to believe you do this for a living.
Edgington, who started his career studying climate science before transitioning to the crypto industry, recognized his daughter's perspective. She had undoubtedly ingested a very toxic environmental narrative, he claimed. It's difficult to defend "stickers for adults" that, according to some calculations, produce a megaton of [carbon dioxide] each week.
Hello, stakers
The new proof-of-stake Ethereum protocol completely eliminates mining.
Validators, who "stake" at least 32 ETH to an address on the Ethereum network where they can neither be bought nor sold, take the place of miners.
Similar to lottery tickets, these staked ETH tokens: A validator's chances of having one of its tickets picked and being able to add a "block" of transactions to Ethereum's digital ledger increase with the amount of ETH they bet.
The Beacon Chain, a proof-of-stake network that Ethereum launched in 2020, served only as a staging location for validators to prepare for the switch up until the Merge. The Beacon Chain and the Ethereum main network were combined for Ethereum to switch to proof-of-stake.
In terms of its influence on the environment, Beiko claims that the proof-of-energy stake's use "is not even a rounding error."
According to him, "Proof-of-stake is like running an app on your MacBook." It's similar to using Slack. It's similar to using Netflix or Google Chrome. Of course, your MacBook requires electricity to function and is plugged into the wall. But nobody considers Slack's influence on the environment, right?
The advantage of the Merge upgrade that excites Edgington the most personally is its effect on the environment, he said. "I feel incredibly proud to be able to look back and say I helped remove a megaton of carbon dioxide from the environment every week, you know. My family and other people are significantly impacted by that, he said.
New incentives
The Ethereum network is better understood as a nation-state than as a single piece of open-source software; it is a kind of living organism that forms when several computers communicate with one another in a common language and all adhere to the same set of laws.
With the help of Ethereum's new architecture, these computers will have new incentives to operate by the rules, protecting the ledger from unauthorized manipulation.
"Proof-of-work is a process by which physical resources are transformed into network security. More of those physical resources are necessary if you want your network to be more secure, according to Beiko. In terms of proof-of-stake, we convert money resources into security.
Even while Ethereum's proof-of-work network was being operated and secured by thousands of individual miners, machines from just three mining pools controlled the majority of the network's hashrate, a metric for the total processing power of all miners.
A so-called 51% attack would have been conceivable if a handful of Ethereum's biggest mining companies banded together to gather a majority of the network's hashrate, making it difficult or impossible for anyone else to update the ledger.
In proof-of-stake, power over the network is determined by the amount of ETH one stakes, not by the amount of energy one uses. Supporters of proof-of-stake argue that this makes attacks more expensive and futile because attackers risk having their staked ETH decreased in retaliation for trying to disrupt the network.
Not everyone believes the buzz around proof-of-stake. There are no indications that proof-of-work, the more tried-and-true and secure approach, will ever be dropped from Bitcoin, for example.
Even while a small number of publicly traded mining syndicates will no longer hold a disproportionate amount of power over the Ethereum network, detractors contend that the existing power players will simply be replaced by new ones. On Ethereum's proof-of-stake chain, Lido, a sort of community-run validator collective, has more than 30% of the stake. Another 30% of the network's ownership is held by three of the biggest cryptocurrency exchanges: Coinbase, Kraken, and Binance.
Proof-of-stake skepticism was motivated Before the Merge, notable cryptocurrency miner Chandler Guo announced that he will start a fork of Ethereum's old proof-of-work chain, creating a duplicate of the blockchain that still relies on miners to function.
Proof-of-work forks have typically been mocked by Ethereum's core developers as sideshows and frauds, although Guo's "ETHPOW" effort and others like it have found some moderate success in certain crypto communities.
Trading the Merge
Since at least mid-July, traders have been speculating on the Merge in the cryptocurrency markets. At first, they thought the event would spur a sharp increase in the price of ETH. Following the meltdown in the markets for digital assets earlier in the year, the market for ETH options began pricing on post-Merge gains.
A new wave of activity was sparked by the possibility that enraged cryptocurrency miners would fork the Ethereum blockchain, this time as traders rushed to lock in value from the hypothetical airdrop of a new "ETHPOW" token.
The markets' response to a successful Merge is generally impossible to forecast with accuracy. Since the upgrade has been planned for Ethereum since its start, the market may have already included it in prices.
Kevin Zhou of Galois Capital said, "I think if you asked me maybe around three weeks ago, I would argue that not only is it priced in, it's overpriced." Currently, there is an approximately 70/30 market split in favor of this being a good development for ETH.
What’s next?
During Thursday's viewing party, Ethereum's co-creator Vitalik Buterin discussed the Merge and said, "This is the first step in Ethereum's big journey towards being a very mature system, but there are more steps still to go." The comparatively high fees and poor speeds of Ethereum, which were not addressed by the update, are still a hindrance to the network's user base expansion just as environmental issues were in the past, he continued.
The network's slow transaction speeds and hefty fees may be addressed by spreading transactions over "shards," similar to adding lanes to a freeway, according to Buterin, Ethereum's most prominent leader, who recently proposed a list of next steps for the network.
The success that third-party solutions, known as rollups, have had in resolving some of the same problems led to the deprioritization of that update, which was initially planned to go along with the switch to proof-of-stake.
Rollups hint at the likely direction of Ethereum development, where community solutions, as opposed to updates to the chain's core code, will be key to enhancing the chain's functionality.
The Merge is only the start for Buterin. On Thursday's live webcast, he stated, "To me, the Merge basically embodies the difference between early-stage Ethereum, and the Ethereum we've always wanted to... become. Let's go ahead and develop all the other components of this ecosystem to make Ethereum what we want it to be.”
Disclaimer
The content is for informational purposes only, may include the author’s personal opinion, and does not necessarily reflect the opinion of The Daily CrptoZ. All Financial investments, including crypto, carry significant risk, so always do your complete research before investing. Never invest money you cannot afford to lose; the author or the publication does not hold any responsibility for your financial loss or gains.
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