Each passing day is beginning to feel like a big day for crypto news, but with the impending Ethereum Merge, it’s about to get even bigger. At a yet-to-be-determined time between Q3 and Q4 of 2022, the Ethereum Merge will launch, ushering the Ethereum community into a new, more sustainable future. But what does this mean for consumers? Furthermore, and perhaps more importantly, how will it affect the people who complete the verification process upon which the entire crypto ecosystem is reliant?
The Ethereum Merge has been described as the “most significant upgrade in the history of Ethereum.” Given that ETH is the cryptocurrency upon which so many blockchain features — including NFTs — are built, people undoubtedly want to understand the implications that this transition will mean for them in the long term.
“It’s an exciting time to be working in crypto,” explains Jacky Goh, cryptocurrency expert and CEO of crypto cashback platform Rewards Bunny. “The Merge is paving the way for a much more secure Ethereum ecosystem.”
The main upgrade happening in the Ethereum Merge will be the transition from a proof-of-work network to a proof-of-stake one. This will allow the Ethereum system to become much more environmentally efficient while also offering some benefits to validators. Although gas fees and transaction speeds will largely remain the same, the transition to a staking-dependent system, rather than one dependent on coin-mining, has the potential to greatly reduce overhead costs.
Ethereum and the proof-of-stake consensus mechanism
Staking is a process by which an investor puts up (i.e. “stakes”) their coins as a part of the verification process, allowing them to earn rewards in exchange. Like the mining process, a network user gets the opportunity to add their latest batch of transactions to the blockchain, but the process by which they do so is quite different. Whereas mining is a more mathematical process requiring expensive graphics processing units (GPUs), staking is more straightforward and, essentially, only requires an internet connection.
Additionally, a proof-of-stake network is generally much more difficult to hack than a proof-of-work network. For example, proof-of-stake networks are much less susceptible to spawn camping attacks, which disrupt the verification process and have enormous consequences for everyone using the blockchain. There are no GPUs for hackers to target, so the process becomes much more costly for hackers, often to the point of not being worth the time and effort.
Indeed, implementing a proof-of-stake consensus mechanism will allow Ethereum to become even more decentralized, which is a fundamental aspect of any cryptocurrency or blockchain-based system. While proof-of-work systems are decentralized, a proof-of-stake consensus mechanism puts the power back into the hands of the majority — not just those with the money it takes to purchase and maintain an extensive mining setup.
Why proof-of-stake is beneficial
Alongside these improvements planned to coincide with the upcoming Ethereum Merge, the switch to a proof-of-stake network will also offer some benefits to consumers, such as an inflation drop, increased staking yield, and reduced sell pressure. “The average Ethereum holder likely won’t notice much difference in the setup pre-merge and post-merge,” Goh explains. “The only people who will notice a real difference will be the stakers, who will know that the system upgrades are beneficial to them all-around.”
The transition to a proof-of-stake network will also allow the Ethereum cryptocurrency to become much more energy-efficient. Because the mining process for a proof-of-work system requires extensive, energy-intensive hardware, the pivot to a proof-of-stake system will use roughly 99% less electricity than its current one. And while staking verification can still be a technically complex process, provisions such as staking pools can reduce verification’s dependence on computing systems that draw massive amounts of energy.
The Ethereum Merge will be a good thing for everyone involved in the Ethereum world. It is the first step toward making Ethereum more eco-friendly and sustainable, which will only benefit consumers in the long run.
Consumers can rest assured knowing that their ETH holdings will not be affected by the merge, and stakers can get excited about this new process that will benefit them. “ETH has become one of the most popular cryptocurrencies,” Goh asserts, “and with the Merge, Ethereum will be positioned to continue to thrive.”
Opinions expressed by US Insider contributors are their own.
