Ethereum is about to undergo a significat update, one dubbed as "the single most significant event in crypto history." The update would result in a complete restructuring of the blockchain technology, the world's second-largest blockchain infrastructure.
After an event known as "the merge," the blockchain network, which presently uses the proof-of-work algorithm that drives bitcoin and other cryptos, will move to proof-of-stake consensus.
Top crypto fund Bitwise Asset Management has hailed this upgrade as the year's most intriguing narrative in the digital asset market.
So, here is a tutorial for you on "Ethereum Merge" to understand how this new evolution of Ethereum will affect and grow the crypto world.
What is the Ethereum “Merge”?
- By transitioning from a proof-of-work (PoW) to a proof-of-stake (PoS) method, the merging attempts to increase the efficiency of the Ethereum blockchain.
- Crypto miners secure the Proof of Work (pioneered by Bitcoin), by coming up with solutions for complex, but practically useless mathematical problems-a process that often takes a lot of energy to execute.
- Meanwhile, individuals staking crypto to perform transactions do it using a Proof of Stake system.
- Both the techniques are now being used on Ethereum. Combining both the layers is expected to bring about a single proof-of-stake chain.
- The merge and transition of the 2 layers will however have no effect on other Ether cryptocurrency present on the network.
Why is Ethereum Merging?
Ethereum is in the early stages of transitioning to the Beacon Chain, which uses the "proof of stake" consensus process.
- When Bitcoin and Ethereum originally launched, every blockchain transaction was validated via a technique known as "proof of work."
- In blocks, a systematic mechanism adds transactions to the Blockchain or digital ledger.
- The proof-of-work system necessitates agreement among all computer networks and the generation of new blocks, which consumes a lot of computational power.
- Instead of depending on computers, proof-of-stake models conserve energy by requiring network participants to stake ETH as collateral to vouch for new blocks added to the chain.
- Its mechanisms in crypto enable ecosystems to circulate cryptocurrency in the same way that fiat money is circulated.
- It takes less time and energy to vouch for new blockchain transactions than proof-of-work models because the coin was previously mined once.
Pros and Cons of “The Merge”
- Proponents of the PoS model hope that the merger will make Ethereum more scalable, safe, and long-lasting.
- PoS will lower the network's energy consumption by 99.95%. This may persuade more people to invest in Ethereum.
- The transition would render Ethereum's miners obsolete and reduce emissions of the numerous applications that rely on the Ethereum infrastructure, including many NFT platforms.
- However, the benefits are not universally accepted. Critics have highlighted security problems and reservations regarding Ethereum's scalability.
When is the Merge Happening?
- Although the Ethereum merge was first proposed in 2016, the transition has proven more difficult than anticipated.
- This was expected to happen in June 2022, but insiders have warned of further delays this month.
- Tim Beiko, a developer at the Ethereum Foundation, tweeted on April 12 that the merge "won't be in June, but likely in a few months after."
What Will the Ethereum Merge mean for Crypto Investments?
- According to several experts, the update would help Ethereum thrive as new blockchain projects have pulled into its market share in the last six months.
- The Ethereum merge could speed up processing, improve security and stability, and reduce Ethereum's energy use by 98% or more.
- This upgrade may result in price increases for related altcoins.
- The upgrade will enable the network to scale, lower transaction costs, and encourage more people to use blockchain technology.
Is There Anything Investors Need To Do With Their Ethereum?
- According to the Ethereum website, present ETH holders are not required to take any action due to the Merge.
- They can get more involved in the upgrading by staking or assisting in testing the enhancements, but their holdings stay unchanged.
What Does the Future Hold for Ethereum?
- The upgrade is expected to reduce the supply of fresh ETH, and demand in the Ethereum blockchain could rise due to the quantity of ETH available to stake.
- For most Ethereum investors, the fall in supply is good.
- Investors in Defi appear to be eager for the Merge to be completed. At least $31 billion in ETH has been deposited in the new Ethereum Consensus Model staking mechanism, ready to validate new transactions as soon as the green light is given.
- High-profile crypto experts are expecting a $10,000 ETH bull run in 2022.
The signals all point to the Ethereum blockchain maintaining its position as the premier smart contract blockchain and maybe being the next leader in cryptocurrency — but Ethereum's developers will have a lot of work ahead of them.
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