The world’s second-largest cryptocurrency has undergone a major transformation that will change its technology to reduce carbon emissions by more than 99.9%, according to its Ethereum platform.
The transition known as “the merger” has been finalized, Ethereum founder Vitalik Buterin confirmed on Thursday.
“And we’ve finalized!…Happy merging everyone. It’s a great moment for the Ethereum ecosystem,” he said in a tweet.
This means that its blockchain technology has been upgraded from the power-hungry model used by its rival Bitcoin.
While anticipation around the move has seen the price of Ethereum’s token, Ether (ETH), double in the past two months, not everyone is looking forward to the change.
Euronews Next examines what is changing and how the transformation may affect the crypto market.
What is Ethereum “merger” and proof of stake?
The first part of the Merge upgrade began on September 6 with the Bellatrix upgrade, which marked a so-called “hard fork” that will convert Ethereum from proof-of-work (PoW) to proof-of-work. stake (PoS) basis.
The switch will shift Ethereum from the energy-intensive PoW model to the PoS model. Both mechanisms are used to confirm transactions and add new blocks to the chain, but they work differently.
The PoW system works like a competitive digital guessing game and the first person to solve the puzzle receives a fixed amount of cryptocurrency.
It requires a global network of computers to operate at the same time when a transaction takes place and therefore a lot of energy.
In PoS system, you don’t need the power-consuming hardware when you acquire coins, which are pledged in the staking process and then there is random selection through software.
The power of your machine does not increase your chances of winning and being able to create the next block for the blockchain. The only thing that increases your chances of winning is simply getting more coins.
How have the markets reacted?
There has been no massive change in Ethereum’s price since the merger was completed on Thursday.
“It’s been a while to come, and so far it’s been going well. Short-term price action has been subdued, and I think it will continue due to the immense amount of interest on options that was opened recently,” Richard said. Usher, head of OTC trading at London-based crypto firm BCB Group.
“My feeling is that today is an extremely important step forward in making cryptocurrency more user-friendly in the future. While it won’t directly affect BTC (Bitcoin) etc., it will underpin the ‘future of all crypto assets going forward,’ he said in comments to Euronews Next.
The volatile crypto market has been under pressure for the past few months in what has been called the crypto winter where the value of cryptos such as Bitcoin has taken a hit.
Usher said he believes that when the broader risk markets begin to rally, he strongly believes that today’s merger will “give beleaguered investors confidence that broader crypto assets have a place in their portfolios.” .
Can the Ethereum merger make crypto greener?
The move to PoS is “a step in the right direction when it comes to sustainability,” Alex de Vries, an economist who runs the Digiconomist site, told Euronews Next.
He estimates that the energy consumption of Ethereum mining is around 72 terawatt hours per year, which is equivalent to the carbon footprint of Switzerland.
De Vries says he is working to determine how much the switch will save energy. For the moment, he estimates that it is at least 99%.
“This translates into something like the electricity consumption of a country like Portugal (a quarter of all data centers in the world combined) disappearing overnight,” he said.
But he added that PoS would not fully solve the crypto energy problem.
“Blockchain by design will simply never be a super-efficient technology,” he said.
A merger or a split?
The choice of merger name is due to Ethereum adopting the Beacon Chain PoS system, but this is a bit misleading as there will likely be more splitting, creating the PoS chain and a PoW chain.
This fork is not the first time it has happened in crypto history. Bitcoin also saw splits after upgrades and created Bitcoin Gold and Bitcoin Cash.
For investors and the crypto startup scene, Merge won’t have much of an impact, according to Eloisa Marchesoni, a tokenomics expert.
“The worst impact will be on the miners,” she told Euronews Next, explaining that the value of the old version is likely to decrease and that the equipment used to mine will not work for the new point model. of sale.
For Ethereum, if the PoS version takes off and the price is high, then the PoW version may have a low price, which will cause the majority of miners to shut down.
Marchesoni, which mines Ether itself, said the expensive equipment isn’t a total waste as you can find alternative coins to mine on PoS that are compatible. Although it may take a month to do this, it does not cause massive problems.
The main thing that bothers miners, she said, is the centralization aspect and the feeling that Ethereum “acts like Wall Street and banks.”
As big as Bitcoin?
Although it may be cleaner for the environment than Bitcoin, the upgraded Ethereum is unlikely to reach the top spot in the crypto market.
“Bitcoin will always be like electronic digital gold. And Ethereum is like fiat currency, they’re just two completely different things,” Marchesoni said.
“And no one has their biggest capital in Ethereum, people will have big capital in Bitcoin. None of the OGs, as we call them, none of the originals in crypto are speculating in Bitcoin that much.”
Marchesoni expects Ethereum to experience a slight price increase, but only for maybe a few days or weeks.
In the long term, she believes Ethereum is laying the foundation for PoS, which unlike PoW cannot be used for the metaverse or NFTs, but other cryptos will develop the blockchain for new protocols and governance models. .
De Vries also doesn’t think Merge will cause the final crypto bull run. While “it’s a step in the right direction” for cleaner crypto mining, he said it doesn’t solve PoS issues, mainly scalability.
However, Merge may inspire policymakers to ban PoW in the coming years as they attempt to regulate cryptos and have raised concerns about its environmental impact.
“If Ethereum can go from proof-of-work to proof-of-stake, why don’t they just say, ‘Bitcoin, either you’re going to do the same or we’re not going to allow Bitcoin anymore,'” said de Vries.
“I think it’s a very real risk if (Merge) really does succeed. I would expect it to come back on the table, maybe not right away, but definitely soon.”
How will this affect Web3?
According to Conor Svensson, CEO and founder of Web3 Labs, the merger will not change much for Web3 Short term.
“The merger event has been on the mind of the Ethereum community for several years now and there is confidence in its inevitability with the various teams building on Ethereum technology,” he told EuronewsNext.
Svensson said the challenge for Ethereum now is that it needs to continue its updates, such as security or speed, to stay ahead of its competitors. But he is convinced that Ethereum’s place in Web3 is the cornerstone of most Web3 technologies, such as NFTs.
“These decentralized autonomous organizations, all appear first on Ethereum and that’s what brought all these projects on it,” he said, adding, “Where is the main innovation happening in Web3? Still mainly on Ethereum” .