A major event took place in the crypto industry in 2022. On September 15, Ethereum made the switch from the energy-intensive proof-of-work (PoW) model to the energy-efficient proof-of-stake (PoS) model. Dubbed the “merge” this event was a major highlight across the global crypto sector for several reasons.
Greg King, the Founder and CEO of Osprey Funds, says that this transition is similar to the upgrade from fiberoptics to dial-up modems that made the internet more accessible for numerous applications including music streaming, online storage, and more.
While proponents of the “merge” saw the transition coming from afar, it took others by surprise. Regardless of what side of the spectrum lie, the bottom line is the “merge” is done and it is time to focus on the future.
Almost six months into the merge, it is a good time to ask yourself what it means for you. Are you an investor, an ETH miner or a user?
This article examines the impact of the Ethereum merge on investors, ETH miners, the environment, and crypto users.
Let us begin by understanding the merge.
Ethereum merge explained
The Ethereum “merge” is nothing but an essential upgrade that primarily changes how new crypto transactions will take place on the blockchain.
How have things changed now? Before the upgrade, the Ethereum blockchain worked on the proof-of-work model. This means that it involved nodes – individual computers that are part of a larger network of computers that are up against one another to solve complex math problems. A successful node can then proceed to mine the next block of a certain transaction to create new coins.
The model is energy-intensive and a huge threat to the environment in the long run. Naturally, as the alarm bells for climate change and global warming grew louder, the need to shift to an energy-efficient model was the need of the hour.
The model is energy-intensive and a huge threat to the environment in the long run. Naturally, as the alarm bells for climate change and global warming grew louder, the need to shift to an energy-efficient model was the need of the hour. But what makes the proof-of-stake model energy efficient? In this case, an algorithm chooses a node that holds more of a particular network’s currency.
But what makes the proof-of-stake model energy efficient? In this case, an algorithm chooses a node that holds more of a particular network’s currency. In simple words, their “stake” in the network is rewarded rather than the computer power that is essentially rewarded in the proof-of-work system.
Why was Ethereum merge needed?
Advocates of the merge say that the upgrade enables the Ethereum network to minimize energy consumption by as much as 99%.
As mentioned before, the proof-of-stake model uses less energy than the proof-of-work model, which is what the Bitcoin network uses. Many cryptocurrency sceptics and supporters alike have emphasized the detrimental environmental effects of cryptocurrency transactions, therefore Ethereum’s switch to the less energy-intensive proof-of-stake is seen as a big advancement.
Additionally, it will also lay the foundation for other elements of the network’s roadmap, such as improving transaction efficiency.
Impact of the Ethereum merge
Now that we have a basic idea regarding the merge, let’s understand the impact it has on different sets of people and the environment.
Ethereum merge: Impact on investors
While the merge leads to a greener and environmental-friendly future, it is highly unlikely that it will make the network faster or reduce transaction costs anytime soon. However, investors will see the compounded benefits over a longer period.
According to King, at this point, no outcome is certain. However, the merge is likely to be bullish for crypto investors in the long run as it lays a solid foundation for ecosystem development and future upgrades.
Eventually, we expect faster transactions and lower fees, which in turn would attract more users, increasing the overall value of Ether (Ethereum’s native crypto). If we see a rise in the number of investors, the supply will naturally take go down.
All in all, we predict that the adoption of the PoS will grow in the future.
Ethereum merge: Impact on users
The merge has happened and users are naturally curious to find out what it means to them. Well, the merge brings some good news for climate-conscious users. While there is no doubt that this approach is cleaner and greener than the proof-of-work model, not much will change other than that, at least in the short term.
Ethereum transactions may eventually become much quicker than they are at the moment. That said, we have a long way to go. Why do we say so? According to the Ethereum Foundation, it is largely because the shift to proof-of-stage will mean that the blocks are produced at a 10% faster speed than they are on the proof-of-work network.
Naturally, quicker Ethereum transactions would be wonderful. Similar to when you buy things with a credit card, it gives a sense of security and satisfaction when the transaction is complete. However, with the PoS network, it would take some time for things to speed up.
Ethereum merge: Impact on crypto miners
How are crypto miners responding to the merge? How are they getting on with things in the post-merge era? As of now, miners have come up with different ways to adapt to last year’s merge.
For example, AntPool, the mining pool associated with Bitmain, announced that it will invest around $10 million to develop applications for Ethereum Classic. Further, Ethermine, which is also the largest Ethereum mining pool in the world, said that it will roll out a Beta version of its staking pool service – EtherMine Staking.
Soon after the merge, multiple reports stated that Ethereum miners will oppose the merge by hard-forking, or fundamentally altering, the network. However, that has not happened yet and we do not see how the miners will succeed in the future. Luxor Technology, one of the leading providers of full-stack bitcoin (BTC) mining software and services, has invested in Ethereum mining despite understanding the possibility of further changes in the future.
Although most miners would have preferred that the Ethereum blockchain stayed with the PoW model, they are rooting for Ethereum to succeed.
Ethereum merge: Impact on climate
What is the future of cryptocurrency? While there are multiple facets involved in fully understanding what the future of cryptocurrency looks like, one thing is certain, we are heading toward an eco-friendly future.
The move to the PoS model is expected to play a significant role in minimizing Ethereum’s energy consumption by a staggering 99.95%. Now isn’t that something? At some point last year, the cryptocurrency network consumed as much electricity as the entire nation of Bangladesh. Naturally, when such humongous amounts of energy are consumed, it results in unwanted levels of carbon dioxide pollution, expediating climate change.
Will the merge put an end to Ethereum’s glaring problems related to the environment? If things go as planned, the upgrade will trim Ethereum’s environmental footprint by a considerable margin. As mentioned earlier, the PoS model eliminates the existing challenges in the PoW model i.e., consumption of unprecedented amounts of electricity and powerful hardware required to keep the blockchain up and running.
Proof of stake requires validators to lock up cryptocurrency tokens as collateral, which serves as an alternative to employing exorbitant energy costs to dissuade unethical behaviour. In this approach, the validators have the incentive to maintain the accuracy of the ledger. The offender forfeits any staked tokens if someone else on the network discovers that they have added invalid blocks to the chain. As the merge is expected to slash Ethereum’s energy consumption by 99.95%, we are expected to see considerable energy savings in the future.
Future of cryptocurrency – a greener future on the horizon
We have seen the impact of the Ethereum merge on users, ETH miners, investors, and the climate. What have we managed to find out? It is still unclear whether the upgrade will lower the transaction fees or accelerate crypto payments. However, we are certainly taking the right steps toward a cleaner and greener crypto industry.
Stay tuned and continue reading iTMunch to know more about the latest blockchain trends, news, and more!
Image 2 Source: https://www.rawpixel.com/