The second largest cryptocurrency received a significant technological update last night.
- Crypto enthusiasts have been awaiting a major update to Ethereum, the second largest blockchain.
- Ethereum has officially changed over to a new consensus method that will change the way the currency processes transactions.
- “And we finalized! Happy merge all. This is a big moment for the Ethereum ecosystem,” says Ethereum co-founder Vitalik Buterin.
- Merge, part of the ongoing transition into Ethereum 2, swaps the system from a proof-of-work system to a proof-of-stake system, similar to bitcoin.
- The overhaul is claimed to reduce the chain’s energy costs by 99.95%, although will not improve network fees or transaction speed, Coinbase reports.
Why it’s important
One of the largest criticisms of cryptocurrency is the power consumption required by miners who need large computer rigs to mine new currency. These rigs are a major energy consumer that offsets less environmentally demanding currencies, as estimates suggest bitcoin mining consumes 150-terawatt-hours per year.
“For blockchain critics, it will massively reduce the energy consumption of Ethereum—maybe by 99%. For ether holders, it will reduce the emissions of that coin, which should improve price appreciation,” says Axios.
The changeover is complicated for Ethereum users though, many of whom were required to upgrade their computer rigs in order to keep up with the new demands of the blockchain.
“Lots of decentralized node operators actually had to update their code—none of these people are employees of Ethereum. That’s not how Ethereum works. If all these independent network users all over the world hadn’t upgraded their software to the latest version, The Merge wouldn’t have worked,” says Axios.
Both systems are designed to protect the integrity of the blockchains and dissuade malicious users, although advocates for both sides see vulnerabilities. Critics of Proof-of-Stake site security risks with the new system.
“PoW proponents counter that PoS staking carries its own centralization and security risks, making it possible for malicious actors to directly “buy” control of the network. They also point out that PoS is a less battle-tested system than PoW, which has proven resilient as the backbone of the two largest blockchain networks,” says Coinbase.
“Nothing catastrophic has happened yet, despite plenty of dark predictions by an army of short-sellers,” says Gizmodo.
What’s not being said
The Merge is not going to address Ethereum’s excessively high transaction fees, although the chain owners have looked into ways to address that issue now that proof-of-stake is implemented.
“Ethereum hopes to permanently lower gas fees on its main layer after the Merge through sharding, which would split the network into smaller pieces and distribute data settlement more efficiently. The Surge, as the transition to sharding is known, is slated to happen sometime in 2023, though that may be an optimistic estimate,” says Blockworks.