Ethereum, the second most valuable cryptocurrency in the world, has completed a major software overhaul that promises to increase the cryptocurrency’s security while claiming to almost completely reduce its carbon footprint.
The overhaul, known as “The Merge,” will eliminate the need for crypto miners and gigantic mining farms that previously operated the blockchain under a mechanism called “Proof-of-Work” (PoW). Instead, it has now moved to a “Proof-of-Stake” (PoS) mechanism that randomly assigns “Validators” to approve transactions and earn a small reward.
The move to PoS will reduce Ethereum’s energy consumption by nearly 99.95 percent, according to the Ethereum Foundation, a nonprofit dedicated to supporting cryptocurrency and related technologies.
What exactly has changed?
Ethereum is a decentralized cryptocurrency, which means that there are no institutions like banks that approve the transactions that take place on its network – the approvals used to be done under the PoW consensus mechanism, which was essentially run by miners. Miners would compete to solve complex mathematical puzzles using a vast infrastructure of cutting-edge computing hardware, and the first to solve the puzzle would be chosen as the validator. This method depended almost entirely on crypto farms, which are huge warehouses lined with rows of computers that would solve the puzzles.
However, there was one big problem – these mining farms were energy guzzlers, which led to one of the biggest criticisms of the crypto industry that they sometimes used more electricity than whole countries and therefore posed a big problem in terms of environmental sustainability.
Enter “The Merge” and the switch to the PoS consensus mechanism. Ethereum is still a decentralized platform, but under the new concept, it would no longer need miners and mining farms to authenticate transactions. Instead, a validator is randomly assigned using an algorithm from a pool of people who “stake” their coins, which essentially means pledging at least 32 Ethereum tokens on the network. This would completely eliminate the need for miners on the Ethereum network.
Why is merging important?
The development comes amid increasing regulatory scrutiny of cryptocurrencies, which have plummeted in value since earlier this year. One of the biggest benefits touted about The Merge is that it will make transactions on the Ethereum network extremely secure.
Justin Drake, one of Ethereum’s key researchers who led the migration, explained it in Time magazine as follows: “The merger dramatically increases the security of Ethereum. An attacker needs 51% of the value of the blockchain [take control]. With Proof of Work, you need somewhere in the region of $5 billion, which you can use to buy enough computers and transformers, plug them all in, and then launch an attack. With Proof of Stake, we’re going to have about $20 billion in economic security today – and I think that number will increase dramatically.”
Apart from that, it is also seen as an environmentally conscious move as Ethereum is now expected to use about 99 percent less energy.
With some of the most popular cryptocurrency applications such as non-fungible tokens (NFTs) and decentralized finance (DeFi) built on the Ethereum network, the overhaul could have far-reaching implications in the future.
What’s next for Ethereum?
At the Ethereum Community Conference in July, Ethereum’s co-founder Vitalik Buterin had said that after “The Merge” the network will undergo further upgrades, which he called “Surge”, “Rand”, “Purge” and “Splurge”.
Rise: This refers to the addition of Ethereum sharding, which promises to process transactions on the network much faster than it does now. Sharding basically means splitting transactions across multiple different chains to reduce fees and speed up transactions. “In the end, Ethereum will be able to process 100,000 transactions per second,” Buterin said at the conference.
Edge: The Verkle will implement what Buterin called “Verkle trees” and “stateless clients” that allow users on the network to become validators without having to store large amounts of data on their computers.
Clean: As the name suggests, this step involves deleting old network history. “The purge: Trying to actually reduce the amount of space you use on your hard drive, trying to simplify the Ethereum protocol over time, and not requiring nodes to store history,” Buterin said.
splurge: Buterin called this phase “the fun stuff”. Its purpose is to ensure that the network continues to run smoothly and that the updates to the protocol in the previous sections do not cause any problems.