Will Ethereum 'Merge' Emerge Victorious? Ethereum is launching its much awaited software upgrade. Here are the things you should know about Merge
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The new software upgrade of Ethereum called 'Merge' is set to go live. Ethereum will move from Ethereum1.0 to Ethereum2.0 as the Merge is set to discard its proof-of-work (PoW) system and adopt proof-of-stake (PoS) system. The Merge respresents joining of existing layer of Ethereum (Mainnet) with the PoS consensus layer called the Beacon Chain.
"The Merge is a bold experiment in decentralized governance; think of it as a major system upgrade without the main manufacturer company of that system coordinating the change. The Merge itself, like all things Web3, is consensus based rather than dictat-based. In fact, there is a fork called ETHW that is likely to come up; representing the minority that wants to continue with proof-of-work. If the Merge goes through successfully, it would be the dawn of a new era where centralized organizations like FAANG are surpassed by decentralized organizations like Ethereum," said Swapnil, founder, Newrl.
Ethereum was the brain-child of Vitalik Buterin when he was just 19 years old. He launched Ethereum in January, 2014 at the North American Bitcoin Conference in Miami. Ethereum since its launch has witnessed growth by leaps and bounds and is only second to Bitcoin in terms of market capitalization, accounting for 18 per cent of the entire cryptocurrency market.
The first phase of Ethereum called Frontier had two main functions: to enable users to mine ETH and to run smart contracts.
Since its launch, Ethereum has constantly provided upgrades in phases. Homestead, Metropolis, Byzantine, Constantinople, Serenity and now Merge are all the phases that Ethereum went through to realistically launch Ethereum 2.0.
"It's a welcome step for Ethereum to shift the mechanism from proof-of-work to proof-of-stake, but a complex process like it can't happen in a single go. Considering the complexity of such a transition, it is going to take a lot of time. As a matter of fact, Tezos has pioneered proof-of-stake - which is a more energy efficient blockchain mechanism. 'Forking' is inevitable when it comes to the real use case of The Merge. One can term this event as a trick to create hype around Ethereum. But the long term implications will only become more clear and evident once the transition takes place," said Om Malviya, founder and president, Tezos India.
It is being claimed that the software upgrade would reduce the power consumption of Ethereum by over 99 per cent which popularly has been the bone of contention for the longest period of time for environment-conscious people.
PoW systems uses a lot of energy owing to the mining of cryptocurrencies. Used by the likes of Bitcoin, PoW allows miners to validate crypto transactions by lending computer power which leads to massive energy usage. This is a hazard for the environment because electricity is majorly produced by burning fossil fuels. PoS system, alternatively, has the ability to limit the number of miners which in turn lessens the power consumption resulting in a reduction of power consumed.
"Tesla's mission is to accelerate renewable energy. Tesla is into renewable energy, being a player in solar energy and we are in interaction with wind energy for our battery packs, we knew that one cannot generate that much increase in power using renewable energy that quickly but one can by shoveling coal. The entire thing looked sketchy to me," said Musk in an interaction with Cathie Wood.
The investors are playing the high-risk, high-reward game. There is a lot of scepticism around the Merge's seamless integration with glitches showing up in the trial runs. If Merge is a success, then post-Merge, Ether will resemble a traditional financial asset that pays interest, like a bond which could probably be a subject of interest for people who have stayed distant from the ecosystem, discarding it as being extremely volatile. Traditional finance professionals such as bankers, brokers, etc., have long struggled with valuing crypto-assets to perform cash-flow analyses to compare Ether's performance with the traditional assets. However, if Merge fails to deliver, it would face the same results as Terra Foundations LUNA and USDT did. Not only this, any glitch in the system would lead the network to go down for a brief period of time ensuing panic and heightened volitality in the market.
"The merge has been one of the most anticipated events in Ethereum's history since its early days. The primary reason for this was the final transition to a Proof of Stake consensus model, which drastically reduces the energy consumption by 99.95%, as compared to just prior to the transition. The negative outlook of the Bitcoin network due to its energy consumption has made this an even bigger milestone for the entire blockchain ecosystem. The transition also means that some of the L2 networks which were built on top of Ethereum's blockchain, which were primarily focused on PoS model, might have to innovate beyond that to provide value to their community. This need to innovate will exponentially increase when the Ethereum developers also implement sharding on this network, which will scale the network's ability to process transactions while maintaining the decentralisation of the network. This transition is truly a testament to the kind of talent that the blockchain ecosystem has attracted in just under a decade," said Srinidhi Moodalagiri, co-founder and CPO, flippy.
Ethereum has witnessed massive leaps in its valuation since mid-June at the back of the announcement of Merge. Ether has climbed approximately 80 per cent since mid-June.