The cryptocurrency community is buzzing with what could prove to be a milestone in the burgeoning digital currency world: a major upgrade – dubbed “the Merge” – of the ethereal blockchain. Crypto enthusiasts say the Merge, which went live on Thursday, has reduced the environmental impact ofand more generally improve its usefulness as a way to conduct financial transactions, among other things.
But what exactly is the Merge and how could it change the future of crypto?
What is the merger?
Ethereum, launched by Canadian computer programmer Vitalik Buterin in 2015 is a blockchain (or a digital ledger) used when cryptocurrency investors buy ether. It is one of the world’s most widely used blockchains, second only to the bitcoin network. According to the Ethereum Foundation, a group of developers that now oversees the blockchain, there are more than 71 million crypto wallets on the ethereum blockchain today.
Think of the Merge as the next generation, or 2.0 version, of. After nearly two years of thinking about and testing a new way to transact, ethereum developers say it’s finally ready for prime time. Simply put, the Merge aims to reduce the number of people and computers needed to add another block of data to the Ethereum network.
The change is called the Merge because previously there were several ways to create a new block of data. Developers have now combined (or merged) these methods into one process.
When should it happen and why now?
The Merge officially launched on Thursday and so far has had no discernible impact on the value of popular cryptocurrencies. Both bitcoin and ether fell more than 1% hours after the upgrade went live.
The Merge is happening now because ethereum is mature enough to handle financial payments, store non-replaceable tokens, trade crypto and host smart contracts, blockchain expert Merav Ozair said. But streamlining the process of adding data to the blockchain could make those and other transactions much faster, according to developers.
Ethereum in its current form can execute 15 transactions per second, says Ozair, founder of startup company Blockchain Intelligence. But if the Merge is successful, the blockchain could eventually process up to 100,000 transactions per second — “far beyond what Visa and Mastercard can do,” she said.
How would the merger reduce CO2 emissions?
In a blockchain network, transactions are not verified by a bank, credit card company or 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 ethereal blockchain, a process known as proof of work.
All those powerful server computers trudging along together require huge amounts of power. The ethereal blockchain uses about 112 terawatt hours of electricity per year – about the same amount of energy used to power the Netherlands. That level of energy consumption causes about 53 tons of harmful carbon emissions into the environment annually, the same amount Singapore produces in a year.
The Merge replaces the proof-of-work system with an alternative method called proof of stake. In that system, cryptocurrency owners known as “validators” put up some of their coins in exchange for the right to be chosen at random to verify transactions and register them on a new block. Because with proof-of-stake fewer people use their computers to verify transactions, fewer terawatt hours are burned.
Using proof-of-stake, the Merge is expected to reduce ethereum blockchain’s power consumption by 99.9%, developers said.
Will the Merge Make It Safer to Use Cryptocurrency?
Very likely. Since December 2020, ethereum developers are essentially running two different versions of the blockchain at the same time. The Beacon version was used so that they could test the proof-of-stake system, while the Mainnet version continued to use proof of work. But if both versions were active, hackers were given twice as many access points to attack ethereum as possible.
Now that the merge is complete, Mainnet has been removed and all financial transactions are only available on Beacon. Removing one version of the chain, combined with having a small pool of validators, will reduce the chances of a hacker harming the blockchain, developers said.
It is important to note that these changes have not yet been proven to make accounts more secure as they have not been widely tested. Ethereum developers have posted a warning on the foundation’s website explaining how hackers can scam users for the digital currency.
Are there any risks or disadvantages?
Moving to a proof-of-stake system is likely to create haves and have-nots among the validators and everyone else using ethereum, said Bryan Daugherty, the global public policy director for BSV Blockchain Association.
That’s because in order to become a validator on ethereum, someone has to invest at least 32 ether – about $52,000 – and agree to keep those tokens in a separate account. Under those rules, anyone who doesn’t have that much cryptocurrency cannot serve to validate ethereal transactions, Daugherty said.
“The way I look at this is that the plan now is to eliminate mining in general and allocate these coins to those with the largest positions,” he said.
Agreeing to put away ether in exchange could also haunt the validators, especially if the price of ether drops dramatically and someone wants to sell, Daugherty said.
“You force people to lock your coins,” he said. “That seems like a big red flag to me.”