etherthe blockchain that underpins the second largest in the world crypto Token Ether has undergone a major software upgrade that reduces the amount of energy required to create new coins and conduct transactions.
Here’s what you think about the “merge“, as the layer is called.
What is Ethereum?
Like other blockchains, Ethereum is essentially a digital database shared across a network of computers. It records ownership of the cryptocurrency Ether and other Ethereum-based digital assets such as non-fungible tokens.
Proponents say Ethereum will form the backbone of much of the widely hyped but not yet realized “Web3” vision of an internet where crypto takes center stage in applications and commerce.
So what is the merge?
The “merge” is a change in how Ethereum processes transactions and how new Ether tokens are created.
The Ethereum blockchain was combined with a new separate blockchain. The new system, known as “Proof-of-Stake,” cuts the power consumption of the Ethereum blockchain by 99.9%, the developers say.
Most blockchains, including bitcoin, consume large amounts of energy, which has drawn criticism from some investors and environmentalists.
That Ethereum Foundationa well-known nonprofit that says it supports Ethereum says the upgrade will pave the way for more blockchain updates that will enable cheaper transactions.
How large is it?
Ethereum supporters say the merger is a monumental moment for the $1 trillion crypto sector.
Proponents believe the merger will make Ethereum cheaper in terms of price and ease of use compared to arch-rival Bitcoin – the world’s leading cryptocurrency.
This could lead to Ethereum applications becoming more widespread.
Some investors are betting that the change will be significant for Ether’s price, which is up more than 50% since late June, compared to Bitcoin’s minimal gains.
Ether’s price showed little reaction to the merger’s completion on Thursday, trading around $1,624.
Proof of stake?
It is. But it’s also important.
There are several ways transactions can be verified on the blockchain – the software that underlies most cryptos. In the “Proof-of-Work” system previously used by Ethereum, new transactions via crypto were checked miners.
Miners used powerful computers that solved complex mathematical puzzles, updated the blockchain, and earned new crypto tokens. This made recordings on the blockchain secure, but very energy-intensive.
In the “Proof-of-Stake” system, Ether holders lock certain amounts of their coins to verify new records on the blockchain and earn new coins on top of their “staked” crypto.
Sounds like a no-brainer, right?
Maybe. While Ethereum developers say the “Proof-of-Stake” model has safeguards to ward off hackers, others say criminals could attack the blockchain under the new system.
If a single entity accumulates most of the ether used to validate new transactions, it could alter the blockchain and steal tokens. Crypto experts also say there is a risk that technical glitches could affect the merge and that scammers could take advantage of the confusion to steal tokens.
It could also become easier for developers to build programs on the Ethereum network, potentially driving adoption. Still, those updates are likely months, if not years, away.