What is The Etherium Merge?
In the Ethereum Merge, two blockchain networks will be combined: Ethereum’s Mainnet and the Beacon Chain proof-of-stake system. In this merger, Ethereum will become a proof-of-stake blockchain rather than a proof-of-work blockchain.
Taking a closer look at the two types of blockchains and the difference between “proof-of-work” and “proof-of-stake” is imperative to a complete understanding of the Merge.
What is “Proof of Work?”
As part of the Proof of Work consensus mechanism on blockchains, members compete to be the first to record their version of transactions. To do this, they use trillions of combinations of letters and numbers to guess the string of letters and numbers. You will likely reach the winning solution more quickly if you have a robust computer network.
After submitting the correct answer, the community will check the completed ledger before it is added to the blockchain, and the correct answer submitter will receive a reward in cryptocurrency. In the case of a cheater who tried to record fraudulent transactions, the community would reject their code as incorrect, resulting in them losing their reward.
What is “Proof of Stake?”
People can make their records of transactions official through Proof of Stake by pledging their crypto assets as collateral.
Because it does not require any energy-intensive computing, it is considered better for the environment and more equitable because not just those with vast computing arrays can profit from it. If you stake more, you have a better chance of becoming the next person to contribute a ledger to the blockchain.
Community members should call out anyone trying to cheat the system, as they did with Proof of Work. The assets they had staked in the opportunity would also be lost. Despite its environmental benefits, it also benefits companies and people who can afford to stake the most cryptocurrency, funneling more assets to those who already have a lot.
‘The Merge’: Why Do They Call It That?
The Ethereum community decided a while ago that a proof-of-stake consensus mechanism would be more beneficial. The launch of “Beacon Chain” by Ethereum occurred on Dec. 1, 2020, following the review of several proposals and technical issues.
The blockchain was used for proof-of-stake consensus testing alongside Ethereum’s main chain. Four hundred thousand validators contribute over $23 billion in Ether to the Beacon Chain. Ethereum’s main chain will merge with the Beacon Chain during the week of Sept. 12, 2022, and proof-of-stake will replace it. The Ethereum main chain will get rid of proof-of-work.
What Is The Importance Of The Merge?
The proof-of-stake consensus mechanism differs substantially from proof-of-work. Various impacts will be incurred on the Ethereum blockchain due to these differences, some of which will be immediate and some of which will be more long-term.
An immediate result of Ethereum Merge is that the Ethereum blockchain consumes significantly less power than before. In proof-of-work systems, brute force computation is used to solve the mathematical puzzle, so there is no shortcut. Proof-of-work miners may first increase their chances of solving the puzzle by utilizing more computing power to increase their chances of receiving associated rewards. The power consumption of a computer increases with its processing power.
A reduction in power consumption has these obvious benefits:
- There will drastically improve the environmental friendliness of Ethereum’s blockchain.
- There will be a significant reduction in the cost of operating a blockchain (paying for electricity).
- Furthermore, reducing power consumption will make it easier to participate in the blockchain.
Reduction in Centralization
As a result of reducing power consumption and increasing accessibility, centralization will also be reduced. The reason is that blockchains based on proof-of-work tend to be more centralized. A proof-of-work miner pools his computational resources with other miner consortiums to increase the probability of winning and getting more rewards. Upon winning the race, the consortium’s members share the reward.
In addition to increasing access to the Ethereum blockchain, proof-of-stake could provide users with other benefits. Due to the 32ETH stake requirement, this might seem counterintuitive. However, the staking cost does not appear to be dramatic compared to proof-of-work mining costs. Complex computer hardware is required to mine proof-of-work, such as mining rigs with multiple customized graphical processing units, specialized cooling, and complex network connections between rigs. In order to operate these machines, it is necessary to locate an area with sufficient electrical connections.
On the other hand, a laptop that costs less than $1,000 can run Ethereum proof-of-stake. It is also suitable for use with standard home power and does not require specialized cooling. Moreover, “proof-of-work”s high power consumption forces miners to seek out electricity at cheaper costs, such as state-subsidized grids.
A proof-of-stake system has lower entry barriers because of lower technical skills and knowledge requirements. Multiple, complex software pieces are required for proof-of-work mining. The Ethereum proof-of-stake system, however, allows you to operate it with only three programs requiring minimal technical skills. It is generally easier for an average person to understand proof-of-stake consensus mechanisms than proof-of-work ones.
Pros of Ethereum Merge
- Several significant implications will arise from the Merge for the crypto market.
- The transition of Ethereum from PoW to PoS will demonstrate how an energy-efficient decentralized network can operate. If the switch to PoW is successful, Web3 projects based on Ethereum will likely be renewed in interest.
- As seen from the macro perspective of crypto markets, Web3 is currently experiencing tremendous interest.
- As a result of Ethereum Merge, different concerns will likely be addressed in a way that PoW networks have not been able to handle. The network will be incredibly efficient and secure, making it possible for many Web3 companies to build their projects on it. As the network becomes more efficient, a solid foundation will be created for future growth.
Cons of Ethereum Merge
- Centralization and governance pose a risk. Since Ethereum is moving toward proof-of-stake, stakers, instead of miners, will validate transactions.
- Four large parties currently hold a stake with 60% of the equity. Could these parties be forced to oppose certain transactions or even a new Ethereum Improvement Proposal by the authorities?
- Scams are another primary concern. In some crypto communities, ETH2 refers to the layer of proof-of-stake on the Ethereum network. It could confuse the Merge and scams seeking to exploit users by tricking them into thinking that they must upgrade their tokens to ETH2 as part of this transition.
- Last but not least, miners without anything to mine after the Ethereum merge will have nothing to do.