Why “the Merge” could change the future of cryptocurrency
The cryptocurrency community is buzzing about what could be a landmark in the rapidly growing digital currency market: a major upgrade, dubbed “The Merge” — of the ethereum Blockchain. Crypto enthusiasts say the Merge 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 is the Merge and how could it change crypto’s future?
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 is second only to bitcoin as the most widely used blockchain. 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. Ethereum developers have finally released the Merge after nearly two years of research and testing a new method of conducting transactions. The Merge is a way to reduce the number and complexity of adding another data block to ethereum’s network.
The Merge is the name of the change. There are many ways to create a new block of data. Developers are planning to combine these existing methods into a single process that is both secure, and eco-friendly.
When is it supposed to take place and why now?
The exact timing for the Merge is unclear, but developers said they’re giving themselves a September 19 deadline to apply the finishing touches. In August, they said they would start rolling out the Merge on September 6 and finish everything between September 10 and September 20, Coindesk reported. The Merge is taking place now because ethereum has the maturity to handle financial payments and store non-fungible tokens. It can also trade crypto and host smart contract, according to Merav Ozair, a blockchain expert. Developers believe that streamlining the process of adding data to the blockchain would make these and other transactions more efficient.
Ethereum can carry out 15 transactions per second in its current form, said Ozair, who found 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 banks, credit card companies, or any 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 mechanism known as “proof of work.”
All of the powerful server computers that work together require a lot 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 merger replaces the proof of work system with a new approach called “proofof stake.” The system uses cryptocurrency owners, known as “validators”, to verify transactions and record them on a new blockchain. Proof of stake requires fewer people to verify transactions and results in fewer terawatt-hours being 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 to test the proof-of stake system, while Mainnet continued with business as usual using proof-of work. Hackers had twice the number of entry points to attack ethereum if they had both versions.
After Merge, the Mainnet version of the blockchain will be deleted and financial transactions will only continue to live on Beacon. Developers stated that deleting one version of the chain and having a small number of validators will reduce the chances of hackers harming the blockchain. It’s important to remember that these changes have not been tested on enough scale to prove they make accounts safer. 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. Daugherty stated that anyone who doesn’t have enough cryptocurrency cannot be used to validate ethereum transactions.
” The way I see it, the plan now is eliminate mining altogether and award these coins the highest positions,” he stated.
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. “
Khristopher Brooks is a CBS MoneyWatch reporter covering financial, consumer, and business stories. These stories range from economic inequality and housing problems to bankruptcies or the business of sport.
I have been writing professionally for over 20 years and have a deep understanding of the psychological and emotional elements that affect people. I’m an experienced ghostwriter and editor, as well as an award-winning author of five novels.