The upshot of Ethereum’s Merge update

Market


What is Merge? When did it start?

The Merge is an upgrade to the way transactions are validated on the Ethereum blockchain. It moves the network from the proof-of-stake (PoS) system to the proof-of-work (PoW) system, which is designed to be more environmentally sustainable and faster. According to the Ethereum Foundation, the Merge will reduce overall energy consumption of the Ethereum network by 99.95%. Blockchains have a short history so far, but in that history, the Merge has become one of the most widely publicized and awaited events. It has been in the works for six years and 15 September marked the end of that build-up.

What does PoS and PoW refer to?

PoS and PoW are consensus mechanisms through which transactions on blockchains are validated. PoW consumes more energy since it allows all miners on a network to try and validate a transaction. As a result, more computers attack a transaction and hence consume more energy. PoS removes miners from the equation, replacing them with entities called ‘validators’. These validators put up a stake (at least 32ETH) in order to gain the right to validate transactions. Only the top stakeholders are rewarded for their work. Their stakes are held in a central wallet, and they are penalized for mistakes or frauds.

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Are there any downsides to Merge?

At the time of writing, 32ETH was worth 40,51,276.41. The key concern is that the Merge will hand over control of the network to rich entities, since they will be able to stake the most ETH. For instance, three of the largest crypto exchanges — Coinbase, Kraken and Binance — own 30% of the total stake at the moment.

Why will Merge enhance prices?

The Merge will be followed by four more steps — called the surge, the verge, the purge and the splurge — eventually expected to raise total transactions supported by Ethereum to 100,000 per second, in the same league as Visa and Mastercard. Scalability has been keeping many institutions from adopting blockchains. Ethereum is already among the most preferred platforms for building blockchain-based products, and being scalable will make it more lucrative for developers, raising the value of Ether, the network’s native token.

Is Ethereum the only PoS network?

No. Other PoS networks have existed for quite a while now, including Cardano, Solana and the Binance Smart Chain. However, the ‘smart contract’ technology, which allowed the building of Dapps in the first place, was first introduced by Ethereum, making it the proverbial early-bird. It has remained the most preferred among developers who build decentralized applications, or Dapps. The Ethereum portfolio includes some of the best known Dapps in the world today.

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