Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
By Arihant Sethia & Harshal Chhabra, Gujarat National Law University
Introduction-
Ethereum, the worldās second most valuable cryptocurrency, has completed a significant software overhaul which promises to ramp up the security of the cryptocurrency while claiming to cut down on its carbon footprint nearly entirely. The birth of Ethereum 2.0 following the iconic 'Merge' was one of the most significant and anticipated events within the web3 ecosystem. The Merge is an upgrade to the Ethereum blockchain, which powers crypto ecosystem innovations. The Ethereum Merge changed the Ethereum security mechanism from proof-of-work to proof-of-stake, which has significantly impacted the blockchain's crypto economics and has many significant implications for the crypto market. The transition of Ethereum from Proof of Work to Proof Of State demonstrates that a decentralised and permissionless network can operate in an energy-efficient manner. The merger will almost certainly spark renewed interest in Web 3 projects that aim to build a layer on the top of the Ethereum network. Furthermore, the merge will improve nearly all metrics of the Ethereum blockchain, paving the way for future application innovation and experimentation.
1. What was the merge
The Ethereum blockchain has merged with a separate blockchain, radically changing the way it processes transactions and how new Ether tokens are created. merge is the combination of the original execution layer of Ethereum with a new Proof of Stake consensus layer known as āBeacon Chainā. The merge eliminated energy-intensive mining and gave way to an environment-friendly staking system. It was successful in realising the Ethereum vision of being efficient and eco-friendly.
2. Proof of Work vs Proof of Stake
The proof of work is an algorithm used by the miners to solve complex problems using the trial and error method. The first miner who could solve the problem gets the authority to add blocks to the blockchain and extend the chain. When the block gets successfully added to the blockchain, the miner receives a reward as compensation for validating the transaction. Proof of Work was responsible for securing Ethereum Mainnet from its genesis until the merge actually took place.
On the other hand, Proof of Stake is a consensus algorithm in which validators are responsible for validating a transaction and adding new blocks to the blockchain. In this method, there is a secured database which secures our blockchain.
3. Why was there the need for the merge
A cryptocurrency can be used in the future only if proven reliable, safe, strong and efficient. These are the four most important characteristics of a promising cryptocurrency. In the case of Ethereum, it was reliable, safe and strong from the day that it was launched, but the main critique of Ethereum was that it was not efficient as a massive amount of energy was used by the miners to solve complex problems which resulted in vast emissions of greenhouse gases, thus impacting our environment. The merge was the step to take away this critique of Ethereum and make it environment-friendly by reducing carbon emissions by 99.5% and putting Ethereum on the list of ideal cryptocurrencies. This is a significant shift because one of the most common criticisms aimed at decentralised networks is that they are 'power hungry' in a world where climate change has emerged as the most pressing issue.
This is why there was a need to move from Proof of Work to Proof of Stake. Although the main aim for transitioning to Proof of Stake was to reduce carbon emissions, it also made Ethereum a stronger network due to thousands of validators. This also resulted in cost reduction for Ethereum as the network is not required to pay vast amounts of money to miners as an award for validating the transaction. Hence, Proof of Stake also made the network cheaper.
4. How did the merge take place
To illustrate how this merge took place, letās imagine Ethereum as a car running on a gas engine. Now it wants to transition from a gas engine to an electric engine to reduce carbon footprints. But the real twist is that this engine needs to be transitioned without stopping this car, and this is the biggest challenge in front of them. So to achieve this, Ethereum developers develop a new electric engine and have successfully tested it for 1.5 years. After testing this engine, they decided to swap it with the old one. To do this, they put this new engine in a car and ran it parallel to the old Ethereum car at the same speed. When both the cars will come together, the developers will swap the gas engine to the electric engine, which will be known as āthe mergeā.
In the case of Ethereum, āstopping the carā would mean halting the block production, which would mean that no transactions could take place during the course of the merge, and this would also alter the pre-existing blocks in the blockchain. Here, the āelectric engineā symbolises the launching of āBeacon Chainā in December 2020, which ran parallel to the original Ethereum Chain for 1.5 years. The merge took place after the successful demonstration of this Beacon Chain. So, the first step was completed when the Beacon Chain was launched. This allowed developers to create a separate network that would work on Proof of Stake to test the productivity without impacting existing Proof of Work. The second step of the merge was to merge the Beacon chain with the original Ethereum network, symbolised as the swapping of the engine in the illustration. This was the stage where the blockchain transitioned from Proof of Work to Proof of Stake.
In order to transition from Proof of Work to Proof of Stake, the execution and consensus layers were unbundled, which meant that both layers could be run separately. After the merge, there is a node which consists of a consensus node and an execution node. Also, there is an Engine API which is responsible for communication between the consensus node and the execution node. Detachment of consensus and execution level also resulted in a quicker launch of the Beacon chain as there was no worry about the execution layer.
5. Benefits of the Merge
- The Ethereum Merge is, without a doubt, the most significant update to the cryptocurrency and blockchain ecosystems. The Merge made the whole network of Ethereum more sustainable and eco-friendlier by reducing its carbon emissions by 99.5%. According to the Ethereum Foundation, ether consumes approximately 112 Terawatt-hours of energy per year. That is roughly the same amount of energy consumed by the entire Netherlands. The merger, will eliminate the energy-intensive proof-of-work system, and replace it with a sustainable and environment-friendly system. The update would not only make Ethereum more environmentally friendly, but it would also reduce the stigma associated with cryptocurrencies.
- The Merge also helped the network to scale itself by taking the transaction per second from 25 Ethereum per second to 100,000 Ethereum per second. Moreover, mining a single Ethereum block takes about 13-14 seconds. The implementation of the proof-of-stake mechanism, on the other hand, reduces the validation time for a block to 12 seconds. As a result, it will be easier to use and faster because it can store more transactions in a single block.
- The merge allows more people to participate in the network by allowing them to become validators. While mining takes a considerable amount of investment which is not possible for everyone, staking is more accessible to everyday users.
Conclusion
If the holder stakes his Ethereum on the network after the merger, it will generate an annual yield of approximately 4% to 6%. Because the proof-of-stake model rewards honest validators while disciplining dishonest validators and their delegators, Ethereum will help the network grow and become more secure. As the expected mid-September completion date of the Merge approached and the process got done, there had been significant price action in Ethereum on many exchanges, as with any major event driving the crypto narrative. Ethereum holders must understand that this is not a one-time upgrade, but rather the start of a long-term process. This merge has brought several reforms in Ethereum as well as the blockchain network as a whole. When all is said and done, the Merge is a triumph for Ethereum. It will open up a whole new world for decentralised applications and industry use cases, as well as enable new blockchain-based advancements. The most intriguing aspect is that Ethereum is now more scalable, strong, secure and efficient.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.