Last week was historic for the cryptocurrency world—or at least historic for Bitcoin competitor Ethereum. That’s because Ethereum has completed its long-awaited “merge,” which signals a new era for the digital token. Here’s what you need to know about the Ethereum Merge:
What is the Ethereum Merge? Also just known as “the merge,” the event signifies a process years in the making. With the Merge, Ethereum has essentially flipped the switch from being a proof-of-work blockchain to a proof-of-stake blockchain
What’s the difference between proof-of-work and proof-of-stake? Proof-of-work is the process most people associate with the creation of cryptocurrency: People all over the world use powerful computers to mine new coins by solving complicated algorithms, which helps the miners—who earn themselves coins—and helps the blockchain in general by validating transactions. Proof-of-stake is the process where existing owners of a crypto put their own coins at risk (at stake) to validate transactions over the blockchain. As Ethereum.org notes, “This staked ETH [ie: capital] then acts as collateral that can be destroyed if the validator behaves dishonestly or lazily.”
OK, but why should non-Ethereum holders be excited about the Merge? While the Merge has many benefits for Ethereum itself, the biggest beneficiary is the planet. As CNBC notes, the Merge is great for the environment because proof-of-stake validation uses over 99% less energy than proof-of-work validation. Or, as Justin Drake, a researcher at the nonprofit Ethereum Foundation, told CoinDesk, “The metaphor that I use is this idea of switching out an engine from a running car. I like to think of it as kind of like the switch from gasoline to electric.”
Is energy consumption a big problem with cryptocurrency in general? Yes—by far it is its biggest problem. It takes a massive amount of energy to mine one Bitcoin—and before the Merge—one Ether. As a matter of fact, the creation of one Bitcoin uses the same amount of energy a U.S. household uses in over 47 days, according to the Digiconomist.
Will the Merge increase the value of Ethereum? It’s almost impossible to answer that question as numerous factors (including fear and greed) greatly affect the already-volatile crypto markets. But the Merge should help more institutional investors get interested in Ether. As CNBC notes, before the Merge, such institutional investors may have shied away from Ether investment and use because the optics of investing in such an energy-hungry commodity didn’t look great. But now that Ether uses 99% less energy, that apprehension could change.
Could Ethereum become the dominant crypto thanks to the Merge? Again, that’s hard to predict. But many in the industry think that is a possibility one day. If its new low-energy consumption causes more people to use Ether over Bitcoin, the two could, theoretically, eventually switch places in the cryptocurrency hierarchy.
ABOUT THE AUTHOR
Michael Grothaus is a novelist, journalist, and former screenwriter. His debut novel EPIPHANY JONES is out now from Orenda Books.