The highly anticipated “Merge” upgrade for Ethereum, which is scheduled to occur in September, will be eagerly watched by the cryptocurrency sector. If the upgrade is successful, it is expected to cut the supply of ether, lessen the carbon footprint of the blockchain, and potentially have a significant impact on the entire crypto ecosystem.
Here are five things you need to be aware of:
What Is Ethereum Merge?
The Merge is an initiative to switch the Ethereum ETHUSD, 0.36% blockchain, from proof-of-work to proof-of-stake in order to reduce energy usage and set the stage for future increases in productivity.
I have a few queries first. The rationale behind the Merge? In order for the shift to take place, the Beacon chain, a proof-of-stake consensus layer, and Ethereum’s Mainnet, or its principal execution layer, will be combined.
What do proof of stake and proof of labor mean? Both of these consensus techniques work to protect blockchain and stop dishonest users from using it for their own gain. The proof-of-work system requires miners to solve challenging mathematical puzzles in order to verify new transactions on the blockchain. This typically necessitates high energy usage, which has exposed the cryptocurrency business to criticism. In 2019, the Yale Environmental Review compared buying bitcoin to “mining diamonds.” Ethereum and Bitcoin BTCUSD, -0.06% currently use the proof-of-work protocol.
Under proof-of-stake, coin owners who stake or lock up their cryptocurrency with the blockchain can confirm blockchain transactions. The technique, which is now employed by many of Ethereum’s rivals like Binance Chain, Solana SOLUSD, 0.03%, Cardano ADAUSD, 0.16%, Polkadot DOTUSD, -0.32%, and Avalanche AVAXUSD, -0.09%, has been promoted as a more ecologically friendly alternative to proof-of-work.
Why does Ethereum need the Merge?
According to the Ethereum Foundation, the improvement is expected to make Ethereum significantly more environmentally friendly by lowering the blockchain’s energy consumption by an estimated 99.95%. According to Digiconomist, at the moment, one Ethereum transaction uses as much energy as the typical American home uses in 6.5 days. The annual energy usage of Ethereum is around 78.6 TWh, which is similar to Chile’s electricity consumption, while the carbon emissions of the blockchain are comparable to Hong Kong.
According to the Ethereum Foundation, the Merge will reportedly reduce fresh ether issuance by 90%. The issue of ether will be governed by an equation that depends on the quantity of ether stake once the merge is complete, as opposed to being capped at five million every year, according to Vitalik Buterin, co-founder of Ethereum, who made this announcement in July.
Additionally, the Merge might make Ethereum more scalable, laying the groundwork for the blockchain to eventually become quicker and less expensive.
What does the “Merge” entail for the rest of the crypto industry?
The first blockchain to go from proof-of-work to proof-of-stake is predicted to be Ethereum. As a result, the entire cryptocurrency sector is interested to see if it can successfully conduct the Merge while facing substantial technical difficulties.
According to data from Defi Llama, Ethereum is the biggest blockchain for decentralized finance, or DeFi, with more than $35 billion in the value stored on it. The Ethereum ecosystem as a whole may be impacted by how well the Merge is executed.
Despite the fact that the value of ether has fallen 57% year to date, according to CoinDesk data, others anticipate a surge in price after the “Merge.” In the coming year, as ether’s new supply is lowered and selling pressure from miners is lessened, analysts at the research firm FSInsight predict that ether’s market cap will surpass that of bitcoin. According to data from CoinMarketCap, the market capitalization of ether is $202 billion, while that of bitcoin is approximately $411 billion.
What time will the Ethereum Merge occur?
Tim Beiko, who coordinates Ethereum’s core development calls, predicted in July that the Merge would go live the week of September 19. Beiko did point out that the schedule could alter.
On August 12, Ethereum’s Buterin tweeted that the Merge will probably take place around September 15; however, the precise date will depend on the hashrate or the sum of all the network’s computing power.
On August 10, Ethereum underwent its final dress rehearsal, with its test environment network known as “Goerli” successfully finishing a Merge.
How are Crypto traders getting ready?
Since Ethereum miner, Chandler Guo proposed to “hard fork” the Ethereum blockchain or split the chain into a duplicate version based on the proof-of-work consensus process in late July, traders have been busily positioning themselves ahead of the merge. Since the Merge would render mining obsolete, some miners swore support for Guo’s idea. The potential popularity of the new chain is unknown.
To be consistent with past forks, if the hard fork takes place, all ether holders should receive an equal number of new tokens on the forked chain. Because of this, some traders have borrowed ether in order to make any earnings.
In general, institutional interests have been increasing in the lead-up to the Merge, with Blockchain statistics showing a substantial increase in the number of addresses owning above 100 ether, 1000 ether, and more than 10,000 ether.