What Is Ethereum Merge, And What Does It Mean for The Future of Cryptocurrency?

What Is Ethereum Merge, And What Does It Mean for The Future of Cryptocurrency?

You may have heard about the plans for Ethereum to implement a change to their blockchain network’s processing of transactions, from a system called Proof-of-Work (PoW) — which Bitcoin currently uses — and into a new system called Proof-of-Stake (PoS).

While there’s obviously a lot of excitement among cryptocurrency community members regarding the upcoming switch, there’s also a good amount of concern and confusion. That’s because Ethereum’s PoS move is different than other upgrades on the network – including network changes that occurred earlier this year – in that its development could signal a transformation from the Ethereum network as we know it today.

There seems to be a lot of noise on the internet about “reduced fees” and “increased fees.” However, there doesn’t seem to be any clear explanation of what this means for average users. Users actively holding large amounts of Ether have a vested interest in understanding this topic.

Moreover, we see similar concerns with Ethereum trading services and services that accept payments in Ether or provide support for customers who pay in Ether. What does this mean for investors, though?

Let’s dig in.

What is the Merge?

The Ethereum Merge is a big deal. The Merge refers to Ethereum network’s shift to proof-of-stake (PoS) as the new system for authenticating crypto transactions. The new system will replace the power-hungry mechanism of PoW, which Bitcoin pioneered.

Still, the Merge is not just a technical change but also a philosophical shift that will have far-reaching implications for Ethereum and all other cryptocurrencies.

Why the Name, ‘The Merge?’

The Ethereum Merge is a blockchain technology used to transition an Ethereum-based blockchain from Proof of Work to Proof of Stake. This transition aims to create a more efficient, scalable, and environmentally friendly network.

When Ethereum’s complete transition to PoS takes place, the Beacon Chain (Consensus layer) will be merged with Ethereum’s PoW mainnet (Execution layer). The already existing PoS network is not yet built for processing transactions. It’s only a staging area for computers operating the Ethereum network.

How Does Ethereum’s Proof-Of-Stake Differ from Its Proof-Of-Work?

Proof-of-stake and proof-of-work are two different ways of verifying a transaction. Proof-of-stake is a newer, more efficient method for verifying transactions, but for a long time, it has been incompatible with the Ethereum network.

In proof-of-work, miners solve complex math problems to verify transactions. This approach can be slow and expensive because you need to pay for electricity and hardware.

In proof-of-stake, you hold onto coins in the blockchain instead of solving math problems. You can only do this if you have a certain number of coins in your wallet at any given time; this is called “staking.” When you stake your coins, it’s like putting them into escrow. If someone tries to make an invalid transaction using those coins (or if they try to double spend), then all the stakers will lose their stakes as punishment for not being able to keep track of the system properly.

When is the Merge Happening?

Sept. 15, 2022.

Each block on Ethereum’s PoW network has difficulty representing how hard miners must work to add it to the network. If that number is too high, miners will have to spend more money (electricity) to mine blocks with transactions on them. If that number is too low, then there won’t be enough security in the system because it will be easy for people who want to attack it (like hackers) and can easily do so.

The goal of the Merge is to find a happy medium between those two extremes—so that there’s enough security in place to protect your coins but not so much that it’s impossible for anyone else but you and your computers’ CPU power alone.

What Happens to Proof-Of-Work Miners After the Merge?

After the Merge, miners on the Ethereum network will be unable to mine new blocks on the blockchain. These miners will either abandon mining or stake their Ether to earn rewards on the PoS network.

Many miners will stop mining for ether and start “staking” their ether to earn rewards on the PoS network. They can earn rewards without spending money on electricity or hardware upgrades by staking. Instead, they need a wallet that supports staking and some ether (which they may already have).

Bottom Line

Ethereum Merge makes possible a wide range of decentralized applications built on top of a cryptocurrency. Many of these dapps will centre around user-generated content, with the coin’s users earn functioning similarly to cash. However, it’s essential to remember that while the technology behind Ethereum Merge may be new and exciting, the internet itself is far from being a new concept. So, what implications does this have for other fields, especially the marketing world? It remains to be seen, but one thing is certain: significant changes are on the horizon.

To find out more about how to invest in Ethereum and the effects of ‘The Merge,’ contact us today at: info@dna-consultancysolutions.co.uk

Image Source: Adobe Stock

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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