The world’s second largest cryptocurrency has undergone a major transformation that will change its technology to reduce carbon emissions by more than 99.9 percent, according to its Ethereum platform.
Ethereum founder Vitalik Buterin confirmed Thursday that the transition known as “merger” is over.
“And we’re done!…Hope you integrate everyone. This is a BIG moment for the Ethereum ecosystem,” he tweeted.
This means that its blockchain technology has been upgraded from the energy intensive model used by its competitor Bitcoin.
While the anticipation around this move has seen the price of the Ethereum token, Ether (ETH), weaken in the past two months, not everyone is looking forward to a change.
Euronews Next looks at the changes and how the shift could affect the cryptocurrency market.
What is Ethereum “Merge” and Proof of Stake?
The first part of the merger upgrade began on September 6 with the Bellatrix upgrade, which defined a so-called “hard fork” that would convert Ethereum from a Proof of Work (PoW) to a Proof of Stake (PoS) base.
The switch will take Ethereum from an energy-intensive PoW model to a PoS model. Both mechanisms are used to confirm transactions and add new blocks to the chain, but they work differently.
The Proof of Work system works like a competitive digital guessing game and the first person to solve the puzzle is awarded a fixed amount of cryptocurrency.
It requires a global network of computers to run at the same time when a transaction is taking place and therefore a lot of energy.
In PoS system, you don’t need power consuming hardware when you get coins, which are put as collateral in the process of storage, then random selection through software.
How powerful your device is does not increase your chance of winning and being able to create the next block of the blockchain. The only thing that increases your chance of winning is just getting more coins.
How did the markets react?
There has been no significant change in the price of Ethereum since the merger was completed on Thursday.
“This has been a long time coming, and it has been going smoothly so far,” said Richard. “The short term price action has been muted, and I think this will continue due to the huge amount of interest in the option that has opened recently.” Usher, head of OTC trading at London-based crypto firm BCB Group.
He said in comments to Euronews.next.
The volatile cryptocurrency market has come under pressure in recent months in what is known as crypto-winter as the value of cryptocurrencies such as Bitcoin plummeted.
Usher said he believes that when the broader risk markets begin to recover, he firmly believes that today’s merger will “give confidence to trapped investors that broader crypto assets have a place in their portfolios.”
Could Ethereum Consolidation Make Crypto Greener?
The shift to PoS is a “step in the right direction on sustainability,” Alex de Vries, the economist who runs the Digiconomist website, told Euronews Next.
The energy consumption of Ethereum mining is estimated to be around 72 TWh per year, which is equivalent to Switzerland’s carbon footprint.
De Vries says he is working on how much the switch saves energy. At the moment, it is estimated to be at least 99 percent.
“This translates to something like the electricity consumption in a country like Portugal (a quarter of all data centers in the world combined) vanishes overnight,” he said.
But, he added, POS won’t completely solve the crypto power problem.
“Blockchain technology by design will never be a super efficient technology,” he said.
Merge or split?
The choice of the name of the merger is due to Ethereum’s adoption of the Beacon Chain PoS system but it is a bit deceptive as there is likely to be more forks, creating a PoS chain and a PoW chain.
This is not the first time this has happened in the history of crypto. Bitcoin also saw splits after the upgrades and created Bitcoin Gold and Bitcoin Cash.
For investors and the novice cryptocurrency scene, Merge will not have much impact, according to Eloisa Marchesoni, a token expert.
“The worst impact will be on miners,” Euronews.next told Euronews.next, explaining that the value of the old version is likely to go down and the equipment used in mining will not work with the new POS model.
For Ethereum, if a PoS issue is launched and the price is high, the PoW issue may have a lower price, which will force the majority of miners to close.
Marchesoni, who mines ether herself, said that the expensive equipment is not a complete waste as you can find alternative coins for mining on POS that are compatible. Although it may take a month to do this, it does not cause major problems.
She said the main point miners get nervous about is the aspect of centralization and the feeling that Ethereum is “behaving like Wall Street and banks.”
How big is bitcoin?
Although it may be cleaner for the environment than Bitcoin, it is unlikely that the upgraded Ethereum will reach the number one position in the crypto market.
“Bitcoin will always be like electronic digital gold,” Marchesoni said. “Ethereum is like fiat money, it’s just two completely different things.”
“No one has the most capital in Ethereum, people will hold so much capital in Bitcoin. None of the OGs, as we call them, none of the crypto assets actually speculate on Bitcoin that much.”
Marchesoni expects Ethereum to see a slight price hike but maybe only for a few days or weeks.
In the longer term, she believes that Ethereum lays the foundation for PoS, which unlike PoW cannot be used in the metaverse or NFTs, but that other cryptocurrencies will develop the blockchain for new protocols and new governance models.
De Vries also doesn’t think Merge will cause the latest crypto bull run. While it’s a “step in the right direction” for cleaner crypto mining, he said it doesn’t solve POS issues, particularly scalability.
However, the Merge program may prompt policy makers to ban PoW in the coming years as they attempt to regulate cryptocurrencies and point to concerns about its environmental impact.
“If Ethereum can go from Proof of Work to Proof of Stake, why don’t they just say, ‘Bitcoin, either do the same or we won’t let Bitcoin anymore,’” said De Fries.
“I think it’s a very real risk if (the merger) is really successful. I fully expect this to be back on the table again, maybe not immediately, but definitely soon.”
How will it affect Web3?
According to Conor Svensson, CEO and Founder of Web3 Labs, the integration won’t change much web 3 in the near term.
“The merger event has been on the minds of the Ethereum community for several years now and there is confidence in its inevitability as the various teams build on the Ethereum technology,” he told Euronews.next.
The challenge now facing Ethereum, Svensson said, is that it needs to continue its updates, such as security or speed, to stay ahead of its competitors. But he is confident that Ethereum’s place in Web3 is the building block for most Web3 technologies, such as NFTs.
“These decentralized, independent organizations, all of these appear first on Ethereum and that is what brought all these projects to them,” he said, adding, “Where is the main innovation happening in Web3? It is still primarily happening on Ethereum.”