Ethereum Merge: Why is it the dawn of new era for crypto

In a major turning point for the crypto industry, the popular crypto platform Ethereum has completed a long-awaited upgrade in its system called -- the Merge. The software upgrade, which comes after about 8 years of wait, could reduce Ethereum's energy consumption by up to 99.95%. It’ll make the blockchain super easy and cheap to use as compared to other cryptos, including the world's largest crypto in terms of m-cap i.e. Bitcoin.

Ethereum's shift from proof-of-work (PoW) to proof-of-stake (PoS) took years because its developers had to construct an entirely new blockchain called Beacon Chain, which was unveiled in 2020. The Merge was fully executed on September 15, 2022, without any glitch, and this completes Ethereum's transition to PoS consensus.

The new system will not only prove to be environmentally-friendly but could also invigorate further research in the crypto space. This can open a new wave of funding for blockchains based on PoS.

What is The Merge?

The Merge refers to the original Ethereum Mainnet – which up until now was working on a proof-of-work mechanism – combining with a separate proof-of-stake blockchain called the Beacon Chain, now existing as one chain. Let’s understand this via an example. Imagine Ethereum is a spaceship that launched before it was quite ready for an interstellar voyage. With the Beacon Chain, the community built a new engine and a hardened hull. After significant testing, it became time to hot-swap the new engine for the old one mid-flight. This merged the new, more efficient engine into the existing ship enabling it to put in some serious light years and take on the universe.

With this, Ethereum eliminates the need for energy-intensive mining, which has been one of the most critical issues that critics highlight with regard to crypto.

Initially, the Beacon Chain worked separately on PoS, and Ethereum Mainnet - with all its accounts, balances, smart contracts, and blockchain state - worked on PoW. The Merge allowed them to finally come together as proof-of-work.

Should it concern you as an Ethereum investor?

As per Ethereum developers, you do not need to do anything with your funds or wallet to account for The Merge. Though it may not seem like much of a difference as an Ethereum user for you, the Ethereum network will experience a higher load as now more people will be undertaking transactions on the upgraded blockchain network.

No history was lost in The Merge, say the Ethereum developers. As Mainnet merged with the Beacon Chain, it also merged the entire transactional history of Ethereum. This means the new network will simply appear to be an upgrade of the old one. But it will be faster and more efficient. Any funds held in your wallet before The Merge will be still accessible after The Merge. No action is required to upgrade on your part.

Why PoS is better?

Both of the systems validate crypto transactions while keeping the network decentralised. In traditional finance, intermediaries play a role in validating a transaction. The PoW was designed to remove such intermediaries by using powerful computers that ran complex algorithms to verify transactions and in return earned crypto awards. But, the system, also known as bitcoin mining, took a heavy toll on the environment. A lot of energy is required to carry out and validate such transactions. Hence, the proof-of-stake.

It is an energy-efficient process, meaning there's no need for energy-guzzling computers to process transactions. Cryptos are deposited in a pool and the transaction is varied by a validator selected randomly. These validators explicitly stake capital in the form of ETH into a smart contract, which acts as collateral. This can be used if the validator behaves dishonestly or lazily. This ensures the validator checks the validity of transactions.

As per Justin Drake, one of Ethereum’s key researchers leading the migration, the Merge dramatically increases the security of Ethereum. "An attacker needs 51% of the blockchain’s value to [take control]. With Proof of Work, you need on the order of $5 billion, which allows you to buy enough computers and transformers, connect all of them to the grid, and then carry out an attack. With Proof of Stake, we will have about $20 billion in economic security today – and this is a number I expect will grow dramatically."