Although the price of Ethereum’s token, Ether (ETH), has doubled in the previous two months due to expectation of the transition, not all people are looking excited about it.
The initial phase of the Merge update started on September 6 with the Bellatrix update, which signifies a so-called “hard fork” that would shift Ethereum from a proof-of-work (PoW) to a proof-of-stake (PoS) basis. The Ethereum Foundation announced that the second phase of the protocol upgrade would occur between September 13 and September 15.
The Ethereum developer team Nethermind announced on September 10 that it has successfully completed the required shadow fork trial, which stresses synchronization assumptions to maintain network security. The previous performance occurred in April, and this was the last. Ethereum will transition from the energy-intensive PoW strategy to the energy-efficient PoS model. Both procedures are employed to validate transactions and add fresh blocks to the chain, but their operation is distinct.
The Proof-of-Work (PoW) protocol functions as a game of chance in which the first participant to answer the problem is given a certain quantity of bitcoin. A transaction necessitates the simultaneous operation of a worldwide network of computers, which consumes a great deal of power.
In the Proof-of-Stake (PoS) method, there is no requirement for energy-hungry hardware, since coins are staked as collateral and an arbitrary choice is made by software. There is no correlation between the power of your computer and your ability to win and build the subsequent block for the blockchain. The only option that will boost your odds of winning is acquiring more coins.
The transition to PoS is “a move in the proper direction in terms of long-term sustainability,” according to Alex de Vries, an economist who operates the website Digiconomist. He believes that the annual energy usage of Ethereum mining is around 72 terawatt-hours, which is similar to Switzerland’s carbon emissions. De Vries says he is calculating how much electricity the swap will save. Currently, he thinks that it is at least 99%.
“This is equivalent to the power usage of Portugal (a fourth of all data centers in the world consolidated) disappearing suddenly,” he stated.
However, he warned that PoS would not completely fix crypto’s energy issue. “Blockchain technology will never be ultra-efficient by nature,” he stated. The selection of the term Merge is due to Ethereum’s adoption of the Beacon Chain Proof-of-Stake (PoS) mechanism, however it is somewhat deceiving since there is more probablity of a split between the PoS chain and the PoW chain.
This split is not the foremost in the history of cryptography. Bitcoin has also seen splits after protocol upgrades, producing Bitcoin Gold and Bitcoin Cash. As per tokenomics specialist Eloisa Marchesoni, the effect of Merge on speculators and the cryptocurrency startup ecosystem would be minimal.
“The greatest effect will be felt by the miners,” she informed Euronews Next, stressing that the worth of the previous version would likely decline and mining machines will no longer be compatible with the latest PoS model.
If the PoS variant of Ethereum becomes popular and the value is high, the PoW variant could fetch a low price, forcing the vast bulk of miners to cease operations. Marchesoni, who is involved in Ether mining, stated that the expensive gear is not a complete waste since there are comparable alternative currencies to mine on PoS. Although this may take up to a month, it does not create significant problems.
According to her, the biggest source of discontent among miners is the centralized component and the perception that Ethereum is “behaving like Wall Street banks.” Even if it’s more environmentally friendly than Bitcoin, it’s doubtful that the updated Ethereum will reach the forefront of the cryptocurrency market.
“Bitcoin will forever be analogous to digital gold. And Ethereum is similar to fiat currency, but they are two very distinct things “explained Marchesoni.
“And nobody keeps their larger wealth in Ethereum; large capital will be held in Bitcoin. The majority of the OGs, or originals, as we refer to them, none of the crypto pioneers, bet on Bitcoin significantly.”
Marchesoni anticipates that Ethereum’s price will increase somewhat, albeit only for a few more days or weeks. She thinks that Ethereum is creating the foundation for PoS, which, with exception of PoW, cannot be utilized for the metaverse or NFTs, but that other cryptocurrencies will improve the blockchain for unique protocols and governance structures.
De Vries doesn’t quite think that Merge will spark the most recent cryptocurrency uptrend. Though “it is a step in the right way” for greener cryptocurrency mining, he said that it does not address the difficulties of Proof-of-Stake, particularly scalability. Merge might cause governments to outlaw PoW in the future years as they attempt to control cryptocurrencies and raise environmental issues about its use.
If Ethereum can transition from proof of work (Pow) to proof of stake (PoS), why couldn’t Bitcoin accomplish the same? “If it (Merge) is really effective, I believe there is a danger. I anticipate that this issue will be revisited in the near future, if not immediately then certainly shortly “.