If the merger goes well, you can see how crypto investors benefit from this
The crypto industry arouses both curiosity and mistrust.
Even in the midst of the cryptomania of 2021, there were many critics who warned of a crypto trap. This year’s crash in the cryptocurrency market has confirmed those concerns and cooled the zeal – not to mention the bank accounts – of retail investors in the space.
But the young industry now has a great opportunity to reintroduce itself to Main Street.
It is called the merger. It is a software update to the Ethereum blockchain, which is considered the internet of the crypto space. The merger is set for September 15, and if all goes well, the crypto industry will take a big step forward in building confidence among investors, crypto enthusiasts say.
Experts say the merger will ease a major criticism of the industry by sharply reducing the energy consumption of crypto-related activities. And the merger should increase the use of crypto, especially in financial services and the development of the decentralized internet.
The merger, explained
The Ethereum platform was created in 2015. Developers use this digital ledger to build many applications of blockchain technology.
Ethereum, which is different from bitcoin, is home to more than 3,000 decentralized applications, from gaming to commerce to financial services such as loans. On ethereum, various trends have emerged, such as initial coin offerings, decentralized finance, non-fungible tokens and, more recently, the metaverse.
Ethereum has also enabled the rise of smart contracts. Transactions entered into by smart contracts require no human intervention. Everything is controlled by mathematical codes.
But the network’s performance has not been able to keep up with increasing demand. Ethereum has seen significant congestion, which among other things led to a sharp increase in fees on the network.
This is where the merge comes in. Basically, it’s Ethereum 2.0. It is a new way of conducting transactions that unites all the different methods of the past into one. It is intended to be more environmentally friendly, safer and cheaper for users.
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Speed is another advantage of the merger. Ethereum in its current form can perform 15 transactions per second. If the merger is successful, the blockchain could eventually handle up to 100,000 transactions per second, which is more than Visa (V) and MasterCard (MA) can do, say enthusiasts.
How the merger makes Crypto more environmentally friendly
Generally, transactions and operations are verified by a bank or a third party. Not with blockchain: The system relies on a network of computers that compete via complex mathematical equations for the right to validate transactions. In return, these validators receive tradable and potentially valuable tokens.
This validation mechanism is called proof-of-work. This system involves the consumption of enormous amounts of electricity because it requires enormous computing power. Ethereum uses around 78.6 terawatt hours of energy a year, which is what the country of Chile uses. The carbon emissions of the blockchain are comparable to those of Hong Kong.
The merger will replace proof-of-work with a system called proof-of-stake.
In this system, the validators are appointed from among a group of cryptocurrency owners. Since many computers no longer need to compete for the right to verify transactions, the system’s energy consumption will be drastically reduced.
This decline will be about 99.95%, estimates the Ethereum Foundation, a group of developers that monitor the blockchain.
How the merger will make crypto more secure
As of 2020, developers were using two versions of ethereum in preparation for the merger. This multiplied the possibilities of attack for hackers and fraudsters. With the merger, one of the versions will disappear and the selection of validators per transaction will be reduced. Thus, the attack opportunities for fraudsters will also be reduced, making Ethereum safer.
The risk of the merger
One of the biggest risks of the new ethereum will be that the platform will be controlled by the wealthy because you have to pay an entry fee to become a validator.
You must have at least 32 ether, the platform’s native token, or just over $56,000 at the current ether price. Validators must set aside the ether in a separate account.
This is clearly a limit to the system because even if the validators put their cryptocurrencies aside, there is no guarantee that they will not act in their own interests.
