You might think cryptocurrencies are the future, or you might think they’re a scam. The upcoming Ethereum merge is a big day, regardless of which side you’re on. A major upgrade to the Ethereum blockchain is currently scheduled for September 15th. If successful, blockchain’s massive power requirements will be reduced by more than 99%.
It’s very important. Cryptocurrency critics argue that coins such as Bitcoin and Ether are useless and consume enormous amounts of electricity. The first point is prejudice and subjectivity, the second is unequivocally trueAt a time when more people than ever see mitigating climate change as a top social priority, the carbon footprint of Bitcoin and Ethereum is too high to ignore.
In the merge, Ethereum will adopt the following system. Proof of Stake, was planned even before the creation of the blockchain in 2014. It has been postponed many times due to technical complexity and the increasing amount of money at risk. A series of upgrades that reshape the
Ethereum co-creator Vitalik Buterin said at the Ethereum Shanghai conference in March, “We have been working on Proof of Stake for about seven years, and the work is finally coming together.” said.
Here’s everything you need to know to understand your big day.
Why are cryptocurrencies bad for the environment?
To understand Merge, we first need to understand the role of cryptocurrency miners.
Let’s say you want to mine cryptocurrencies. Set up powerful computers (mining rigs) to run software that attempts to solve complex cryptographic puzzles. Your rig will compete against hundreds of thousands of miners around the world trying to solve the same puzzles. When your computer first decrypts it, it gives you the right to “validate” the block, i.e. add new data to the blockchain. You will be rewarded for doing so. A Bitcoin miner receives 6.25 Bitcoins ($129,000) for each block he validates, while an Ethereum miner receives 2 Ether ($2,400) plus gas. This is the fee (which can be huge) that users pay for each transaction.
You need a powerful computer to have a chance at this race, and people usually set up warehouses full of rigs for this purpose. This system is called “Proof of Work” and runs on both Bitcoin and Ethereum blockchains. The point is that blockchain decentralization and security can be realized at the same time.
Delphi Digital analyst Jon Charbonneau said: Charbonneau explained that all blockchains must run on scarce resources that can’t be monopolized by bad actors. In the case of proof-of-work blockchains, that resource is electricity, in the form of electricity needed to perform mining operations.
To overtake Ethereum today, bad actors would need to control 51% of the network’s power. The network consists of hundreds of thousands of computers around the world, so the bad guy needs to control his 51% of the power of this vast mining pool. Doing so will cost billions of dollars.
Your system is safe. Scams and hacks are common with cryptocurrencies, but the Bitcoin and Ethereum blockchains themselves have never been compromised. However, the drawback is clear. Energy consumption soars as cryptographic puzzles become more complex and more miners compete to solve them.
How much energy does crypto use?
So many. Bitcoin is estimated to consume about 150 terawatt-hours per year, more than the electricity used by his 45 million people in Argentina. Ethereum, close to her nine million citizens in Switzerland, consumes about 62 million terawatt hours.
Much of that energy comes from renewable sources. According to the Bitcoin Mining Council, approximately 57% of the energy used to mine Bitcoin comes from renewable sources. (BMC relies on self-reporting among members.) This is motivated by self-interest, not climate considerations. Renewable energy is cheap, so mining operations are often located near wind farms, solar farms, or hydroelectric power plants.
Still, the carbon footprint is huge. Ethereum is estimated to emit carbon on a scale similar to Denmark.
How can merging help?
The merge will see Ethereum completely abandon the energy-intensive system it currently uses, Proof of Work, in favor of Proof of Stake.
In Cryptoland, “staking” refers to depositing cryptocurrencies into a protocol. In some cases, this can generate interest. For example, the creator of the terraUSD stablecoin offered customers her 19% interest on her staked TerraUSD.until it explodes).
Also, staked cryptocurrencies help secure the protocol, as is the case with proof-of-stake blockchains. As we will soon see, the more Ether staked, the more secure the merged blockchain will be.
Once Proof of Stake is enabled, miners no longer need to solve cryptographic puzzles to verify new blocks. Instead, deposit your ether tokens in a pool. Imagine each of these tokens being a lottery ticket. If your token number is called, you earn the right to validate the next block and the associated rewards.
It’s still an expensive enterprise. A prospective block validator (now known as a “validator” rather than a miner) must wager a minimum of 32 Ether ($48,500) to qualify. This system sees speculators putting in raw capital rather than force to validate blocks. A malicious attacker would need his 51% of the network’s power to overrun a proof-of-stake system, but his 51% required. The more Ether you stake, the more secure the network will be as the cost to reach his 51% of capital will increase.
According to the Ethereum Foundation, power consumption will drop by an estimated 99.65% as cryptographic puzzles will no longer be part of the system.
Why is it called “merge”?
Ethereum moves from proof of work to proof of stake by merging two blockchains.
The Ethereum blockchain that people use is known as the “mainnet” because it distinguishes it from the various “testnet” blockchains that are used only by developers. In December 2020, Ethereum developers created a new network called Beacon Chain. Beacon Chain is essentially the new Ethereum.
The Beacon Chain is a proof-of-stake chain that has been working in isolation since it was created 18 months ago. Validators are adding blocks to the chain, but these blocks contain no data or transactions. Essentially, there are various stress tests going on before the big day.
The merge will transfer data held on the Ethereum mainnet to the Beacon Chain, making the Beacon Chain the primary blockchain for the Ethereum network. Leading up to the merge, Ethereum developers have been stress testing the new blockchain by running data and transactions on various Ethereum testnets.
“When I spoke with the Ethereum developers, they were confident that even if proof of work mining had been banned overnight, they could have done the merge months ago and it would work. The concern is that the Ethereum “client” (the software that can read Ethereum data and mine blocks) has a bug that could take months to fix.
According to Charbonneau, Ethereum developers have taken special care to ensure that the various clients used by validators work together when merging.
Are there any risks?
absolutely. Detractors of Ethereum – usually Bitcoin enthusiasts – liken the integration to replacing an airplane engine mid-flight. It’s not just planes that are at stake, he has $183 billion worth of Ether in circulation.
On a technical level, new blockchains can have many unexpected bugs. Solana, another proof-of-stake blockchain, has suffered several complete outages this year. The difference between Solana and Ethereum is that Solana has very low fees. That means it’s easier for bots to overwhelm the blockchain, but technical issues aren’t out of the question.
Critics also question whether Proof of Stake is as secure as Proof of Work. Charbonneau believes it may be more secure due to a feature called “thrashing”. This means that if a validator is found to have acted maliciously, they can burn staked Ether and revoke network access.
“If someone attacked Bitcoin by 51% today, they wouldn’t really be able to do anything,” said Charbonneau. “They have all the miners and they can keep attacking you. With proof of stake it’s really easy. If you attack the network it’s provable and we can Just chop you up and your money is gone.”
“One bullet and you’re done. After that, you can’t start over.”
Will it increase the price of Ether?
Ether has fallen about 60% since the beginning of the year, and many are hoping that Merge will bring the price back up. This has been a hotly debated topic in the crypto world in recent months, and no one knows what the merge will do with the price of Ether.
There are two main reasons why people expect the price of Ether to skyrocket after the merge. The first is that Ethereum will split its carbon footprint, making it easier for large companies to both invest in Ethereum and create Ethereum applications.
“The reality is that if you remove the eco-friendliness part, there are a lot of people who won’t take advantage of it. [ethereum] We don’t want to invest solely for ESG reasons,” said Charbonneau, referring to environmental, social and corporate governance criteria for ethical investment. Anything until after the merger
The second argument people make is a little more technical. Mining Ethereum is expensive. As electricity prices rose and cryptocurrency prices fell, even successful mining operations began to lose money. To offset costs, miners typically sell most of the cryptocurrency they earn from mining. This creates millions of dollars of selling pressure every day as miners offload Ether. Once Ethereum becomes Proof of Stake, miners (or “validators” as they are called) will no longer have to sell all the Ether they earn.
Others, however, argue that Merge is already priced. Merge has been going on for his seven years, and many big investors are pouring money into Ethereum in the hope that Merge will succeed.
When will the merge take place?
The merger is expected to take place in September. The latest tentative date of September 15th was given during a developer call on Thursday, August 11th. That date is actually earlier than expected, with September 19th previously marked as a significant date.
Ether rose significantly as the merge approached. The cryptocurrency is currently hovering around $2,000, up nearly 60% since July before the Ethereum Foundation developer confirmed the date. It’s still far from the high of $4,800, but it’s encouraging news for Ethereum enthusiasts in the cold winter cryptocurrency.
