What is the Ethereum Merge? A Huge Step Forward for the Crypto World
Before now, the Ethereum merge was one of the most anticipated events in the crypto sphere until it finally happened on the 15th of September 2022. But what exactly is the Merge all about, and why was it so anticipated? We are going to find out in this article.
Ethereum, like Bitcoin, used to operate on an energy-intensive Proof of Work (PoW) mechanism, which allows computers within an extensive network and capacity to compete against one another to solve challenging mathematical puzzles. The successful ones can then mine the next transaction block to mine (produce) new coins.
However, this mining system consumed an unrealizable amount of energy, and something had to be done.
The Ethereum Merge is simply the Ethereum blockchain shifting protocols from being a Proof of Work (POW) blockchain to becoming a more sustainable, eco-friendly, and energy-conserving Proof of Stake (POS) system, which is said to reduce the network's energy consumption by a whopping 99.95%.
The new mechanism, Proof of Stake (PoS), allows users to stake their coins, which is an alternative to electricity, which facilitates computing power. This process is known as staking.
These people, known as validators, are chosen randomly to validate newly added data before it is added to a block. If they verify valid facts, they get rewarded accordingly.
Why the Merge?
The energy used in mining and validating blocks in the blockchain is usually insane. Some reports have claimed that the power used by the Ethereum network alone is greater than the energy used by some countries within the same timeframe. That alone is a cause for concern. The idea of an upgrade was necessary. The Ethereum network needed to merge with the beacon chain(consensus layer) to create a green eco-friendly. Blockchain.
The Beacon chain is the component that is responsible for controlling Proof of stake networks. It runs parallel to the mainnet and has over 375,000 active validators. After the Merge, the beacon chain is set to prepare Ethereum for the next multi-phase upgrade of shard chains, improving the network capacity to scale and store data.
What does the Merge Mean for Investors?
Some investors had anticipated the Merge with the hopes that it would spike the prices of the currency immediately. However, it turned out not to be the case.
Now that the Merge is complete, investors are not obligated to do anything in particular. However, the Merge is supposedly going to reduce gas fees and increase the network speed, which means more adoption as more people would want to participate in upgraded technology, making this a bullish event for crypto in the long run.
The Merge will also make the network less vulnerable to hackers as the cost to validate transactions would be around $55,000 or 33 ETH, making it more difficult for anyone to access. But this does not entirely rule out hacking activity, and the network is still susceptible.
After the Merge, What Next?
Vitalik claims that Ethereum will be able to process "100,000 transactions per second" after the completion of 5 further updates:
Now that the Merge is complete, the next phase is the Surge. This will introduce systems that will make the Ethereum network more expandable and enable the creation of layer 2 or companion products, including Sharding and rollups, making it more operable.
Shading is meant to split the Ethereum networks into smaller bits, known as shards, to increase their scalability. Data is broken within the identical blockchain to create mini blocks.
Sharding is a computer science concept that scales applications to support more data. If Sharding can be implemented on Ethereum, each user could store part of the change in the database instead of the entire thing.
After the Spurge is complete, the next operation to be implemented on the network will be the Verge, this tackles the issues of scalability by introducing Merkle trees, a powerful upgrade to Merkle proofs allowing much smaller proof sizes.
In Merkle trees, one can store a large amount of data by showing a short proof of any piece of the same data, which someone with the tree's root will then verify.
The next phase is the Purge, which reduces data from the network, thereby making validating blockchain more efficient for validators under the POS mechanism.
This is the last phase of the ultimate upgrade, where the network will continue to run smoothly, ensuring all the upgrades do not cause any lagging.
Overall, there is a significant possibility that following the executed Merge, the price of Ethereum would rise. Competing platforms may be more challenging to surpass Ethereum because of the increased efficiency, new smart contracts, and users.
Also, the Merge is not a network capacity expansion and won't lead to lower gas prices, according to the foundation. Instead, it will change the consensus mechanism as Ethereum is switching to Proof of Stake, which the foundation claims will increase energy efficiency by more than 99.95% without lowering costs.
Frequently Asked Questions (FAQs)
1. How will The Merge affect the price of Ethereum?
That is currently an open question. Traders have predicted that prices might go in either direction; some predict a rise in prices, while others predict a decline. What is evident is that, even after considering the possibility of a deflationary monetary policy and increased developer activity on the blockchain, the market prognosis for ETH post-Merge is not exceptionally clear-cut
2. What distinguishes Proof of Work from Proof of Stake?
Proof of Stake (POS) relies on validators who contribute their token, in this case, ETH, as collateral in exchange for the opportunity to update the blockchain with the most recent verified transaction and earn newly minted tokens. Proof of Work (POW) relies on the sheer power of computers across a decentralized network to verify transactions.
3. Should I buy more ETH now?
Ethereum, like other cryptocurrencies, is viable to high risks and should be traded cautiously with only money one can afford to lose. However, investors and researchers are optimistic and believe that the price will go up due to the positive effects of the Merge.
4. What is Ethereum 2.0? Is it different from Ethereum?
Ethereum 2.0 was the name initially given to the much anticipated Ethereum merge. And no, Ethereum 2.0 does not mean new tokens. It is simply upgrading the Ethereum Proof of Work (POW) protocol to Proof of Stake (POS).
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Abdulhafeez Yusuf is a content writer at the International Youths Organization for Peace and Sustainability. He is currently an Agricultural student at Bayero University in Kano, Nigeria. His passions include web design, digital marketing, real estate, and Web3. Inputs and Edits by Aswin Raghav R.