Ethereum, the second most popular cryptocurrency is planning for one of the largest updates that mainly focuses on a less energy-intensive technology.
This Ethereum change, transition, or update in the crypto space is often referred to as Ethereum 2.0 or Eth2. But according to the official information from the Ethereum team, this change is termed Ethereum Merge.
This could possibly affect your crypto investments in two different ways:
For the miners – The difficulty for mining an etherum will drastically increase so the overall profitability will decrease.
For everyone else – The transition to POS (Proof of stake) would reduce the delay & the gas fee per transaction.
This might be completely new for a few people, but don’t worry. We will run you through the basics and explain every detail that you need to know about Ethereum Merge.
What is ETH Merge?
Ethereum merge is an update to Ethereum’s consensus mechanism from the Proof of Work (PoW) model to the Proof of Stake (PoS) model.
As mentioned earlier, the main reason behind this update is to eliminate the power-hungry mechanism of Ethereum which is currently considered as negative environmental impact.
The Proof of Stake upgrade to the Ethereum network, the validation of transactions happens depending upon the coins contributed.
This means, to validate the transactions, you should stake few coins in the Ethereum network, and in case of any mishap like validating bad or fraudulent data, they might lose the staked coins as a penalty.
Similarly, if more coins are staked, the higher chances to validate the transactions and the more reward you will earn.
This upgrade doesn’t mean Ethereum will be moving from its older network (Mainnet) but will part into a new network (The Beacon chain). The Main net is based & secured by Proof of Work (PoW) whereas the Beacon chain is based & secured by Proof of Stake (PoS).
This merge connects both the networks and lets the Ethereum network run on both networks simultaneously.
How does ETH Merge benefit Ethereum?
This change might eliminate mining entirely as the difficulty to mine an Etherum will skyrocket.
But the main reason for the Ethereum Merge is to move towards a sustainable & eco-friendly cryptocurrency.
As mentioned earlier, this merge will transform the work consensus mechanism of Ethereum from Proof of Work which is an energy-intensive mechanism that requires high compute power computers to validate the transactions to more of an eco-friendly work consensus mechanism, Proof of Stake.
This merge aims to achieve to maximize the efficiency levels and reduce the overall carbon footprint that has been created since the inception of Ethereum. This carbon footprint is mainly due to the Ethereum Miners who use specialized equipment and graphics cards with applications that suck a lot of power & generate heat.
When can we expect Eth merge?
According to the news the core developer, Preston Van Loon told the change will be finalized in the next three months. Which is around Q3/Q4 of 2022.
The official information on Ethereum’s website also states that the Switch from Proof Of Work (PoW) to Proof of Stake (PoS) is expected to ship around the same time, Q3/Q4 of 2022.
But the complete change won’t happen in one go as there are multiple milestones that it has to go through during the transition process.
It begins from the original Ethereum Mainnet which is the Proof of Work Model that runs parallel to the Ethereum’s infrastructure Beacon Chain will merge with the new Proof of Stake Model that was developed in 2020.
The Phase 1 of Merge is targeted in Q3/Q4 followed by future upgrades that will mainly focus on efficiency and sustainability. During 2023, these larger updates will be deployed over small shards. Here Sharding is a process of breaking up a large amount of data into smaller units to reduce the load in the network and ultimately avoid network congestion & speeds.
What to expect after the merge?
This important update to the Ethereum will likely lead to a decrease in the new Ethereum supplied as it’s much harder to earn ethereum rewards. One can make rewards based on the amount of ETH staked in the network.
For the investors, the decrease in supply is a positive sign, said Christine Kim, a research analyst. She also quoted “Supply should contract rather than expand over time. And so I think that’s huge boost to Ethereum’s investment narrative as store value and as a hedge against inflation”.
And on the other side, DeFi investors reported that at least $31 Billion worth of ETH has already been deposited in the new Ethereum’s Consensus Model of Staking and they are ready to validate new transactions once the merge update goes live.
Whales & other crypto professionals are predicting ETH to run as high as $10,000 in 2022 and billionaire Mark Cuban quoted he’s bullish on Ethereum’s upcoming update.
Again, this is not the last update to the Ethereum network but just the beginning. So expect anything to happen! So, what do you think about the Ethereum Merge? What are your thoughts on it? Drop them in the comments down below.