Here is some cryptocurrency news for you. A positive one for a change since the cryptocurrency crash has been upon us!
According to the Ethereum Foundation, the long-awaited Ethereum merge event will take place around Thursday and will cut the blockchain’s energy consumption by 99%.
The six-year-in-the-making update will convert Ethereum from a proof-of-work to a proof-of-stake consensus mechanism.
This means that so-called gas fees, or transaction costs, will decrease, and the network will be able to execute transactions more quickly.
Some have labelled the merger the most significant in cryptocurrency market, since the invention of ether and bitcoin, citing the blockchain’s value in the hundreds of billions of dollars.
Ethereum powers some of the most popular crypto-related applications, such as NFTs and smart contracts.
Ethereum cofounder Vitalik Buterin recently voiced his support for proof-of-stake protocols on Twitter, and has said the goal would be to slash energy consumption by 99.95%.
“The way to think about the merge is simply as a shift in the way transactions are validated on Ethereum,” Ari Redbord, head of legal and government affairs at TRM, told Insider.
Proof-of-work verifies transactions through cryptocurrency mining, but it consumes a lot of energy. Proof-of-stake selects validators based on their “stake” in the blockchain, or how much of that currency has been committed in order to be chosen as a validator.
The Ethereum network will effectively be split into smaller data blocks to allow for speedier processing, resulting in the so-called Ethereum 2.0 — which intends to handle 100,000 transactions per second. Ethereum can currently process approximately 30 transactions per second.
“Under the new paradigm, decentralized networks can operate with lower fixed costs, and become more flexible for larger-scale solutions beyond just currency and financial applications,” Al Morris, co-founder of DeFi firm Koii Network, told Insider.
According to experts, the merger’s aftermath is not guaranteed to be favourable, and uncertainty persists.
Proof-of-work supporters have cautioned that a small number of ether holders will soon have disproportionate power, whilst proof-of-stake supporters contend that increasing control by network investors will result in a safer system.
Redbord, who specialises in detecting illegal behaviour in the digital asset industry, is unsure whether the chain’s security would improve with the update.
Experts warn the Ethereum blockchain will indeed become faster and cryptocurrency prices will be cheaper, but it’s possible transactions don’t speed up all that much compared to other, albeit smaller, chains.
Altogether, analysts said the event could usher in more widespread adoption for the Web3 ecosystem.
“Insurance companies generally invest their reserves in corporate and government debt instruments, but instruments with similar risk/rewards characteristics are currently difficult to find, or simply don’t exist, in the digital asset ecosystem. Staking on Ethereum may be the closest alternative,” BofA said.