Closer look at the merge: Advantages and Concerns The Merge can cause

In the early afternoon of September 15, The Merge – the event to merge the Ethereum blockchain network that was awaited by the entire cryptocurrency world – took place successfully.

The consolidation was performed at approximately 2 pm (KST) after the network reached the Total terminal Difficulty of 587,500000000000000000000. After this milestone, the Ethereum validation process switched from proof of work (PoW). to proof-of-stake (PoS).

The move from PoW to PoS is seen as Ethereum’s goal in limiting carbon consumption, with a reduction of up to 99.95%. This can also be considered the end for Ethereum miners because current mining systems mainly use the PoW mechanisms to operate. Meanwhile, PoS only does the authentication task, thereby not consuming as much energy as before.

Why is The Merge important?

According to Decrypt, many other sectors in the crypto world are interested in the merger event, not just Ethereum miners. The Merge is especially important to blockchain technology, NFT users, Web3, and even regulators, because Ethereum is the world’s largest decentralized Internet platform with the Web3 ecosystem. Consolidation means a complete upgrade of a huge decentralized system with a market value of up to $200 billion.

According to Ouke Cloud Chain data, Ethereum is attracting more than 3,000 developers and millions of users. The ecosystem has over 400 DeFi projects, 130,000 NFT contracts, and over 7,500 active nodes. In addition, graphics card manufacturers and cryptocurrency miners are also greatly affected.

Besides, according to experts, the move from PoW to PoS means that Ethereum tokens cannot be created anymore. When the supply is gone along with some “burning” mechanism, the price of this digital currency can increase sharply in the future. In fact, less than an hour after the consolidation, the price of Ethereum jumped from $1,500 to over $1,600 each.

Success and worries of The Merge

The Merge is successful

For many crypto fans, they hope The Merge will bring a breath of fresh air to crypto, which has been flooded with trillions of dollars in losses over the past year, a massive series of hacks and scams, as well as waves of surveillance. new from the government.

And they have reason to celebrate the success of The Merge.

First: The network is still working normally

Before the upgrade took place, a lot of people were worried that Ethereum would encounter major problems, because switching the blockchain’s consensus mechanism is not easy at all.

Before The Merge, no other party had ever done something like this on a crypto platform, let alone on a platform the size of Ethereum. It took the company’s developers years of testing and research to gain the confidence to make this massive transformation.

If The Merge doesn’t go as planned, hundreds of billions of dollars worth of crypto transactions, NFT collections, and DeFi protocols hosted on Ethereum could suffer irreparable damage.

But everything went smoothly. Completing the upgrade while the network is still up and running is a technical feat, said Harsh Rajat, co-founder of Ethereum Push Notification Service based in Mumbai. “It’s like changing the foundation of a skyscraper while the building is still standing!”

Second: Save energy

The new Ethereum blockchain is much more environmentally friendly than the old blockchain. With the former “proof of work” mechanism, Ethereum is secured by a network of high-powered computers that compete with each other to solve cryptographic puzzles, which consumes a lot of energy as a result. Now, with a “proof of stake” mechanism, investors will deposit crypto into a shared pool to secure the network and in exchange for a chance to receive rewards.

This change will cause the new Ethereum blockchain to consume 99.95% less energy than the old blockchain, crypto researchers say. This is a huge turning point — comparable to having the entire country of Portugal shut down, according to Digiconomist, a website that tracks the energy consumption of cryptocurrencies.

Tuesday: Positive impact on ETH price

Many people think that The Merge event will benefit the price of ETH.

Running the Ethereum blockchain involves burning billions of dollars worth of ETH every year. The new blockchain will still burn ETH but it no longer needs to generate a lot of new ETH to reward miners. This means that the total supply of ETH could decrease, thereby increasing the value of the coin.

Also, unlike old miners, new validators won’t be pressured to sell some ETH to pay their electricity bills, and this could make ETH prices more stable.

Fourth: Increase scalability

The Merge is the opening shot in a series of upgrades that help Ethereum solve the problem of scalability.

Currently, crypto is facing a “trilemma” in terms of decentralization, security, and scalability. According to one theory, after a period of operation, blockchain has to compromise with one of these three factors, it is impossible to achieve all three simultaneously.

With Ethereum, The Merge was the first step to solving this problem and followed by four other stages of development.

• The Surge: Implement sharding, a scaling solution that reduces transaction costs on Ethereum.
• The Verge: Introducing the ‘verse tree’, an update that makes the network more decentralized by making it easier for users to become validators.
• The Purge: Erase historical data and technical debt.
• The Splurge: More updates after the first four phases to ensure smooth network operation.

According to Vitalik Buterin, after completing these five phases, the Ethereum network will be able to process 100,000 transactions per second.

Concerns The Merge can cause

Aside from the jubilant celebration, some fear The Merge could cause serious tension in the crypto community.

There are already some Bitcoin “fans” who believe that Ethereum’s move to a “proof of stake” mechanism is a PR move that makes the network look “noble” while “putting” Bitcoin down. Because Bitcoin – currently using a “proof of work” algorithm has no plans to switch to a new consensus mechanism. So it is possible that it will still consume high power, at least for the foreseeable future.

In addition, although there are plans to make the network more decentralized in the future, with the security of the network by letting investors stake in large Ether pools, the new Ethereum is at risk of increasing centralization. throughout the crypto industry.

That means giving more power to big companies like Coinbase and Kraken, as well as making it easier for the government to get hold of Ethereum by pressuring these companies to censor. certain transactions. (Though Brian Armstrong, CEO of Coinbase, has stated that if this scenario were to happen, he would rather shut down the company’s Ethereum staking operation than comply with government censorship requirements.)

In the past, the crypto industry has been criticized for its environmental impact. With The Merge’s success in reducing power consumption by 99.95%, Ethereum disabled one of these biggest attack targets. It is believed that compared to the past, regulators will no longer strongly oppose Ethereum 2.0 and companies experimenting with NFT and other technologies based on Ethereum.

But there are concerns that solving the energy problem does not help large-scale crypto adoption. Because right now there are a lot of people who are skeptical of cryptocurrencies for reasons that have nothing to do with energy. Maybe they have friends or family members who are bankrupt because of LUNA or NFT Baller Ape Club. Maybe they are scared because of the constant hacks or the complexity of cryptocurrencies…

Right now, the biggest threat to cryptocurrency — in the United States at least — is industry regulators who seem to want to ban it. These regulators are worried about stablecoins, Ponzi schemes, ransomware attacks backed by other countries, or investors losing money to lending systems. shady crypto.

The Merge doesn’t seem to solve any of these problems. While some crypto politicians may change their minds knowing that Ethereum currently uses 99.95% less energy, it is unlikely that this advantage will have an impact on the biggest ears in government.

For example, Gary Gensler, head of the Securities and Exchange Commission (SEC), did not address environmental concerns at all in an article in The Wall Street Journal last month about why the industry of Cryptocurrencies should be more tightly regulated.

As such, the Ethereum community is enjoying moments of joy, but besides that, anxiety is still present.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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