What is Ethereum Merge?

Published on 12 Sep 2022

Ethereum, Merge

The long-awaited Ethereum Merge will occur next week, and it will be one of the most significant events in the history of cryptocurrencies. Merge is relevant regardless of whether you are a blockchain enthusiast or a crypto skeptic, despite its obscurity. If successful, the technique would reduce Ethereum's vast power needs by more than 99 percent.

The first statement is divisive and subjective, but the second is true. Typically, skeptics of cryptocurrencies contend that coins such as bitcoin and ether are worthless and require vast power. This is of immense importance. The co2 emission of bitcoin and Ethereum are too evident to ignore at a time when climate change prevention is the top priority for more people than ever before.

The Merge is a component of what was formerly referred to as "ether 2.0," a set of improvements that restructure the blockchain's fundamentals. In the Merge, Ethereum will implement a technique called proof of stake, which has been planned since 2014, before the formation of the blockchain. Multiple delays have occurred due to its technical complexity and the growing amount of money at stake.

Vitalik Buterin, co-creator of Ethereum, said at the Eth Shanghai conference in March, "We've been working on a proof of stake for nearly seven years, but now all of that effort is coming together."

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Why Is Crypto Not Environmentally Friendly?

One must first understand the function of bitcoin miners to comprehend the Merge.

Suppose you wanted to mine cryptocurrency. You would configure a powerful computer, known as a "mining rig," to execute software that seeks to solve complicated cryptographic challenges. Your mining equipment competes with hundreds of thousands of other miners attempting to solve the same challenge. If your computer deciphers the encryption before anyone else's, you earn the ability to "verify" a block or add new information to the blockchain. Bitcoin miners get 6.25 bitcoin ($129,000) for each block they verify, but Ethereum miners receive 2 ether ($2,400) plus gas, which are the transaction fees users pay for each transaction (which can be huge).

To compete in this race, you need a powerful computer, and individuals generally build warehouses full of rigs. This mechanism is known as "proof of work," It is used by both the bitcoin and Ethereum blockchains.

Jon Charbonneau, an analyst at Delphi Digital, described the phenomenon as the Sybil resistance mechanism. Charbonneau argued that any blockchain must operate on a limited resource that bad actors cannot dominate. For proof-of-work blockchains, this resource is energy, which is necessary to use a mining operation.

Currently, a malicious actor would need to possess 51% of the network's power to seize control over Ethereum. The network comprises hundreds of thousands of computers around the globe; thus, the bad guys ought to contain 51% of the power in this enormous mining pool. This would cost billions of dollars to do.

Despite the prevalence of scams and hacks in crypto, neither the bitcoin nor Ethereum blockchains have been hacked in the past. The network is secure. The disadvantage, though, is evident. As cryptographic problems get more complex and the number of miners competing to answer them increases, energy consumption skyrockets.

How Much Power Does Cryptocurrency Use?

Many and many. Bitcoin is expected to use around 150 terawatt power per year, which more than 45 million Argentinians use. Approximately 62 million terawatt-hours are used by Ethereum, which is comparable to the amount of energy consumed by nine million Swiss residents.

The majority of this energy comes from renewable sources. According to the Bitcoin Mining Council, around 57% of the energy utilized to mine bitcoin is derived from renewable sources. (BMC depends on self-reporting among its members.) This is not driven by climate concern but self-interest: since renewable energy is inexpensive, mining activities are often established near the wind, solar, or hydro fields.

Nevertheless, the carbon impact is substantial. It is believed that Ethereum emits the same amount of carbon dioxide as Denmark.

How Will Merge Be Beneficial?

During The Merge, Ethereum will abandon proof of work, the energy-intensive approach it presently employs, in favor of proof of stake.

"staking" refers to the deposit of bitcoin to a protocol in the crypto community. Occasionally, this is done to generate interest. For instance, the terraUSD stablecoin's developers promised clients 19% interest on staked terraUSD: you could invest $10,000 and withdraw $11,900 a year later (until it imploded).

In other cases, such as using a proof-of-stake blockchain, staked cryptocurrency serves to secure a protocol. As we shall soon see, the more ether staked, the more secure the blockchain will be after the Merge.

After the proof of stake implementation, miners will no longer be required to solve cryptographic problems to validate new blocks. They will instead deposit ether tokens into a pool. Imagine that each of these tokens is a lottery ticket: if your token's number is called, you receive the privilege to verify the next block and the associated benefits.

This method uses raw money rather than power to certify blocks. It remains a costly endeavor. To be qualified, prospective block verifiers, who will be known as "validators" rather than "miners," must invest a minimum of 32 ether ($48,500). The greater the overall amount of ether invested, the more secure the network becomes as the cost of obtaining 51 percent of its capital rises. A malicious actor requires 51% of a network's power to overcome a proof-of-work system, but 51% of all ether-staked ones overrun a proof-of-stake system.

Since cryptographic problems will no longer be a part of the system, the Ethereum Foundation estimates that power consumption would decrease by 99.65 percent.

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Why Is It Known As "The Merge"?

Two blockchains will be merged to facilitate Ethereum's shift from proof of work to proof of stake.

The Ethereum blockchain used by the general public is known as the "mainnet," as opposed to the many "testnet" blockchains mainly used by developers. In December 2020, Ethereum engineers established a new network known as the "beacon chain." Essentially, the beacon chain is the new Ethereum.

The chain of the beacon is a proof-of-stake chain that has been operating in isolation for the last 19 months since its inception. Validators have added blocks to the blockchain; however, these blocks have not included any data or transactions. It's like a bus driving empty routes to ensure the engine is functioning correctly.

The Merge will move the data stored on Ethereum's mainnet to the beacon chain, becoming the network's primary blockchain. In preparation for the Merge, Ethereum developers have been stress-testing the new blockchain on several Ethereum testnets by passing data and transactions across it.

Charbonneau said that Ethereum developers were convinced that the Merge would have worked even if proof-of-work mining had been, for example, prohibited overnight. The concern is that Ethereum "clients" — software that can read Ethereum data and mine blocks — may include vulnerabilities that may take months to cure.

The Merge has been repeatedly postponed over the last several years. Charbonneau said that Ethereum's developers are taking additional precautions to guarantee that the various clients validators use are compatible at the time of the Merge.


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