Sun. Jun 16th, 2024

Ethereum’s “Merge” is live — here’s what you need to know – Share Market Daily

By Mahesh Limbani Sep 15, 2022

The cryptocurrency community is abuzz about what could prove to be a landmark event in the burgeoning digital currency world: a major upgrade — dubbed “the Merge”— of the ethereum blockchain. Crypto enthusiasts say the Merge, which went live Thursday, will greatly reduce the environmental impact of cryptocurrency mining and more broadly enhance its utility as a way to conduct financial transactions, among other uses. 

But what exactly is the Merge, and how could it change the future of crypto?

What is the Merge?

Ethereum, which was launched by Canadian computer programmer Vitalik Buterin in 2015, is a blockchain (or a digital ledger) used when cryptocurrency investors buy ether. It’s one of the world’s most used blockchains, second only to the bitcoin network. There are more than 71 million crypto wallets on the ethereum blockchain today, according to the Ethereum Foundation, a group of developers who now oversee the blockchain.

Think of the Merge as the next generation, or 2.0 version, of ethereum. After nearly two years thinking about and testing a new way of conducting transactions, ethereum developers say it’s finally ready for prime time. Put simply, the Merge aims to reduce the number of people and computers it takes to add another data block to the ethereum network. 

The change is called the Merge because previously there were several ways to create a new data block. Developers have now combined (or merged) those methods into a single process.

When is it supposed to happen and why now?

The Merge officially launched on Thursday and, so far, it has had no discernible impact on the value of popular cryptocurrencies. Both bitcoin and ether were down more than 1% hours after the upgrade went live. 

The Merge is happening now because ethereum is mature enough to handle financial payments, store non-fungible tokens, trade crypto and host smart contracts, said blockchain expert Merav Ozair. But streamlining the process to add data to the blockchain could make those and other transactions much faster, according to developers. 

Ethereum can carry out 15 transactions per second in its current form, said Ozair, founder of startup company Blockchain Intelligence. But if the Merge is successful, the blockchain could eventually handle up to 100,000 transactions per second — “way above and beyond what Visa and Mastercard can do,” she said. 

How would the Merge reduce carbon emissions?

In a blockchain network, transactions aren’t verified by a bank, credit card company or other third party. Rather, it relies on a network of computers competing to solve complex problems in exchange for tokens. It takes thousands of computers to verify transactions on the ethereum blockchain, a process known as “proof of work.” 

All of those powerful server computers chugging away together require vast amounts of power. The ethereum blockchain uses about 112 terawatt-hours of electricity a year — roughly the same amount of energy used to power the Netherlands. That level of energy consumption releases about 53 metric tons of harmful carbon emissions into the environment annually, the same amount Singapore produces in a year.

The Merge replaces the proof-of-work system with an alternative method called “proof of stake.” In that system, cryptocurrency owners known as “validators” put up a share of their coins in exchange for the right to be randomly chosen to verify transactions and record them on a new block. Because proof of stake involves fewer people using their computers to verify transactions, fewer terawatt-hours are burned. 

Using proof-of-stake, the Merge is projected to reduce ethereum blockchain’s energy consumption by 99.9%, developers said. 

Will the Merge make is safer to use cryptocurrency?

Quite possibly. Since December 2020, ethereum developers have been running essentially two different versions of the blockchain at the same time. The Beacon version was used so they could test the proof-of-stake system, while the Mainnet version carried on with business as usual using proof of work. But having both versions running gave hackers twice as many entry points to potentially attack ethereum. 

With the Merge now complete, Mainnet has been deleted and all financial transactions only live on Beacon. Deleting one version of the chain, combined with having a small pool of validators, will reduce the odds of a hacker harming the blockchain, developers said. 

It’s important to note that these changes have not yet proven to make accounts safer because they haven’t been tested on a wide enough scale. Ethereum developers have posted a warning on the foundation’s website, explaining the way hackers may try to scam users for the digital currency.  

Are there any risks or downsides?

Moving to a proof-of-stake system will likely create haves and have-nots among the validators and everyone else who uses ethereum, said Bryan Daugherty, the global public policy director for BSV Blockchain Association. 

That’s because, to become a validator on ethereum, someone must invest at least 32 ether — roughly $52,000 — and agree to keep those tokens stashed away in a separate account. Under those rules, anyone who doesn’t have that much cryptocurrency can’t serve to validate ethereum transactions, Daugherty said. 

“The way I look at this is the plan now is to eliminate mining overall and award these coins to those with the biggest positions,” he said. 

Agreeing to stash away ether in exchange could come back to haunt the validators, too, especially if the price of ether falls dramatically and someone wants to sell, Daugherty said.

“You’re forcing people to lock up your coins,” he said. “That seems major red-flaggy to me.”

Source link

Related Post