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Ethereum Merge: All You Need to Know

Plus500 | Wednesday 07 September 2022

In the midst of the overarching Crypto Winter experienced over the past year, Ethereum’s merge might be, according to some, the light at the end of the tunnel for the crypto sphere. Evidently, a general Crypto retreat brought about by inflation, higher interest rates, and the war in Ukraine has taken a toll on Ethereum which as of the time of the writing has fallen by 23% since August. The world’s second-biggest Cryptocurrency has been preparing for this major event for a couple of years now and it's deemed by some to be a substantial event in the history of Cryptocurrencies and might, in some perspectives, be the beacon of light for the Crypto market.  Here’s what you need to know about the merge: 

Ethereum Merge

What Is the Ethereum Merge?

Some might not be surprised to learn that Cryptocurrencies consume a lot of electricity and computing power, which in turn may harm the environment. While the Crypto market is continuously burgeoning and there are countless Cryptocurrencies out there, Ethereum (ETHUSD) alone uses a whopping 78 terawatt hours of electricity each year, about as much as Chile consumes and the equivalent of Hong Kong’s annual emmissions. As a result of these overwhelming figures, the merge may be necessary. In its simplest form, the Ethereum merge is essentially an upgrade of the Ethereum blockchain which might explain why it is also referred to as ‘Ethereum 2.0’.  This might explain why the second-biggest Cryptocurrency vowed to get rid of 99% of its energy consumption by eliminating energy-intensive code. Accordingly, this elimination is feasible through the merge which intends to reduce energy consumption and environmental harm, increase network security and scalability, and allow developers to add new features to the Ethereum network. 

How Does the Merge Happen?

The merge is estimated to come to fruition around September 13-16 and is done by combining a separate blockchain which was created in 2020 and is called the Beacon Chain with Ethereum’s mainnet blockchain. The relationship between the two goes as follows: Ethereum’s mainnet is deemed the execution layer which allows the data transfers on the blockchain to take place. On the other hand, since Ethereum runs on blockchain technology which means that transactions on it need to be validated, the Beacon Chain is the consensus layer that validates or invalidates the transactions that want to take place in the mainnet (execution layer). Eventually, this process has to be done all while shielding the transactions from forging or Crypto theft. To do so, Ethereum’s mainnet utilizes a Proof of Work (PoW) system, which is what essentially gives Ethereum its environmentally notorious harm. This is because PoW involves a mechanism called “mining,” which is the act of using energy-intensive computation to validate transactions through solving complex cryptographic algorithms and mathematical problems with the help of nodes (intersections within data communication).

To combat the environmental harm, through the Ethereum merge, PoW will be replaced by Proof of Stake (PoS) which can have significant effects on the environment. While PoW requires energy-draining nodes to solve cryptographic math equations, PoS does not. The PoS consensus, therefore, secures the network by asking users to stake some of their own Cryptocurrencies in order to increase the chances of the system choosing them as block validators. Consequently, the merge is expected to reduce Ethereum’s energy consumption by about 99%. 

What Does the Market Have to Say?

As per every event in the market, there are divided views on the matter. According to some Cryptocurrency experts and market watchers, the merge could go down in Crypto history as one of the most significant events to Crypto fanatics as well as green environment advocates who will probably be relieved to hear that Ethereum’s notorious energy drainage has been cut drastically.  

Others, however, may be less optimistic. Despite the ostensible environmental harm caused by Ethereum, the worsening global warming, the falling Crypto markets, and regulatory hurdles on energy-consuming processes, especially in Europe in light of the war in Ukraine and the sanctions on Russian energy sources, some Crypto watchers and traders still seem to be in favor of Ethereum’s existing PoW mining. This, perhaps surprising support, arises from the fact that PoW has already proved to be financially lucrative, though it is losing some of its luster due to the global energy crisis. In spite of these regulatory risks, PoW appears to have a surprisingly large motion to keep it from being replaced by PoS despite its negative impacts. Whether or not this merge will indeed uplift Ethereum and the Crypto market from its lows is yet to be determined. Traders and Crypto fanatics will have to wait and see how this one turns out. (Source:Yahoo News)

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