Ethereum’s long-awaited “Merge” reaches the finish line

The moment finally arrived, in the final minutes before midnight on the West Coast on Wednesday.

After years of delays, discussions and frantic experiments, the popular cryptocurrency platform Ethereum completed a long-awaited software upgrade known as Merge, moving to a more environmentally sustainable framework.

Ethereum is arguably the most crucial platform in the crypto industry, a layer of software infrastructure that forms the foundation for thousands of applications that handle more than $50 billion in customer funds. The upgrade is expected to reduce Ethereum’s energy consumption and pave the way for future improvements that will make the platform easier and cheaper to use.

Celebrations erupted on a YouTube livestream where engineers and scientists working on the merger had gathered to mark the milestone. It was a rare moment of joy in a bleak year for crypto, which saw a devastating market crash drain nearly $1 trillion from the industry and force some prominent crypto companies into bankruptcy.

“This is going as well as it could so far,” said Danny Ryan, an Ethereum researcher who has been working on the merger, as he celebrated with a group of colleagues.

Crypto users were on the lookout for any bugs that could complicate the transition. A failure in the merger could put the broader crypto industry at risk, boost startups and send the market into a tailspin. Cryptocurrency exchange Coinbase announced in August that it would pause certain Ethereum deposits and withdrawals during the merger as a safety precaution.

In interviews before the merger, Ethereum developers said they had prepared for trouble, although they downplayed the possibility of a system-wide collapse.

“I don’t want to say that everything will go perfectly without problems,” said Tim Beiko, who works for the Ethereum Foundation, a non-profit organization that helps maintain the platform. “We’re kind of confident that we won’t see problems at the network level just because we’ve gone through it so many times before.”

The technical details of the merger are terribly complex. But ultimately, the process boils down to a shift in how cryptocurrency transactions are verified.

In traditional finance, an exchange of funds involves an intermediary, such as a bank, confirming that one entity has enough money to make a payment to another.

Crypto was designed to eliminate such financial gatekeepers. So early crypto engineers had to develop an alternative system to ensure users had the funds they claimed to have. Their solution was called “proof of work”. Under this system, powerful computers run software that runs to solve complex problems, verifying transactions in the process. The system is widely known as “mining” because the computers earn payments in cryptocurrency as a reward for the verification service.

Bitcoin, the original and most valuable cryptocurrency, runs on a proof-of-work system. And until the merger, so did Ethereum. But the process drains the environment: running all those computers requires a huge amount of energy.

The merger moves Ethereum to a verification system called “proof of stake” that uses less energy. Unlike proof-of-work, the new framework does not involve an energy-guzzling computation run. Instead, participants deposit (or “stake”) a certain amount of their crypto savings into a pool, which enters them into a lottery. Every time a crypto transaction requires approval, a winner is chosen to confirm the exchange and receive a reward.

By some estimates, Ethereum’s move to proof-of-stake will reduce energy consumption by more than 99 percent. And the project’s developers say the switch will make it easier to design future updates that minimize so-called gas fees — the cost of carrying out a transaction in Ether, the cryptocurrency tied to the Ethereum platform.

The process of shifting Ethereum to proof of stake required years of intense study and debate. The platform was founded in 2013 by a teenage software engineer, Vitalik Buterin, who remains one of the most influential people in the crypto industry. Ethereum is now powered by a loose network of coders from around the world. For months, they have gathered on video calls streamed on YouTube to discuss the intricacies of the merger.

The shift to proof of stake took so long in part because it required the construction of an entirely new blockchain—the public ledger where cryptocurrency transactions are recorded for all to see. The new chain, the Beacon Chain, was unveiled in December. A series of tests followed this year.

The Beacon Chain has now finally combined with the original Ethereum blockchain, meaning the “merger”.