The much anticipated “Ethereum merger” has now been set to take place on the most popular blockchain network by its developers. Ether is Ethereum’s native cryptocurrency, and it powers the decentralized blockchain network that goes by the same name. The Ethereum platform provides the basis for smart contracts. Ethereum also paves the way for decentralized application development. In particular, those working on the Ethereum network are anticipating that it will make the transition from the proof-of-work (PoW) consensus technique to the proof-of-stake (PoS) consensus mechanism. So, in light of this, what does this imply? Studying a variety of concepts is necessary in order to have an understanding of the fundamental aspects of the Ethereum merger and the significance it will have in the long run. Following is a collection of specifics as well as definitions.
Concepts To Grasp
It is essential to have a solid understanding of the following two cryptographic consensus processes before digging into the topic of merging:
- Proof-of-work (PoW) is a decentralized consensus technique that prevents users from manipulating the system by requiring network members to invest effort in solving an arbitrary mathematical problem. This procedure demands a great deal of electricity.
- Proof-of-stake (PoS) is a consensus method for blockchain networks that requires validators to stake their own crypto assets in return for the opportunity to verify new blockchain transactions. The first validator is chosen to verify a new block, and further validators certify its validity. Once a certain validation threshold is reached, the network generates a new block on the blockchain, and all validators gain a reward in the network’s native cryptocurrency. This approach takes far fewer computing resources and is considerably quicker.
The PoW system was phased out and replaced with the PoS system. While Proof of Work (PoW) relies heavily on the aid of computers, Proof of Stake (PoS) drastically decreases the amount of computational work that is necessary to verify new blocks on a blockchain. The fact that validators in Proof of Stake are selected at random and miners do not have to compete with one another to solve an equation makes PoS more environmentally friendly and energy efficient than Proof of Work. In principle, the PoS method ought to provide a higher level of protection than the alternative. Mining cannot take place in a PoS network since staking is the primary process. You need to have invested prior to being a validator in the project. If you haven’t yet make sure you are using reputable payment gateways to purchase your crypto such as Altalix where you can get your cryptocurrency with no hidden fees directly to your wallets!
What’s This Split Talk?
The Ethereum merge is the moment at which the network will shift from PoW to PoS. It may seem to be an easy job, but technologically, it will demand significant effort. The new network is dubbed “Ethereum 2.0” by its designers. This move is analogous to the transition from Web1 (early public internet) to Web2 (broadband/streaming/social media age) since Ethereum developers were always aware of PoW’s limits. This implies that the merger is inevitable, even if the majority of the blockchain sector continues to use the PoW technique.
Cardano, Flow, and Solana are well-known blockchain systems that have already included the PoS protocol. The Ethereum network has already begun implementing PoS with the Beacon Chain and has been operating it in parallel with its PoW approach; the Beacon Chain will be used to initiate the merging. As a consequence of abandoning mining, the Motley Fool estimates that the Ethereum merging will decrease the network’s energy usage by 99.5%.
What Does This Mean If I Own Ethereum?
Ethereum’s upgraded architecture might also help it compete with other blockchain networks, but investors need still be wary about over-investing since crypto prices vary frequently.
What about gasoline prices? Vivek Raman, a DeFi trader and head of the Proof-of-Stake network, said in a Twitter thread that the initial version of Ethereum 2.0 would not lower gas costs since the merging will only affect the consensus layer and not the data availability or execution layers. Ethereum is already a viable cryptocurrency project that comprises a significant portion of the portfolios of many long-term investors. A successful update will let it compete with the newer, quicker, lower-cost Ethereum rivals that have grabbed substantial market share in the last year. Speculation about a specific occurrence causes a price increase, followed by a price decrease when the event occurs.
Cardano (ADA) implemented smart contracts. Speculation around the crucial launch drove the price to an all-time high of over $3, more than quadrupling its current price. Excessive levels of hysteria might lead to prices that are unsustainable. There are already media headlines claiming that the integration would solve all of Ethereum’s problems, which is incorrect. The integration will fix a portion of Ethereum’s issues, but not all. Like Cardano’s smart contracts, it is possible that the reality of the merger may be disappointing.
Nonetheless, there are also grounds for optimism. A decrease in the quantity of Ethereum in circulation would almost probably benefit its price. As would the expanded chances for wagering. Moreover, a number of industry analysts feel that the merger would encourage more institutional investors to purchase Ethereum, which will be beneficial for the cryptocurrency in the long run.
At The End of the Eth
The anticipated integration is a crucial milestone for Ethereum. DeFi Llama indicates that more than half of the money locked up in DeFi apps is on the Ethereum network, so a successful Ethereum merging is essential for the whole sector. But keep in mind that this has been in the works for years, and the merger is only one stage in a lengthier process.
Try to maintain a long-term perspective as an investor at, rather than succumbing to short-term hype. It is impossible to forecast if Ethereum’s price will reach unsustainable highs in the next months. However, viewing current Ethereum developments through a five- to the ten-year lens makes you less likely to get burnt by any emerging price frenzy.