The merger is estimated to make Ethereum more than 99pc more energy efficient as it moves away from mining, but some experts argue that it fails to address other issues on the network such as scalability and speed.
A big change is set to hit the cryptocurrency industry, with a long-awaited upgrade to the Ethereum blockchain set for next month.
The upgrade, known as the Ethereum Merger, will see the blockchain move from its current energy-intensive system to a more environmentally friendly method. The non-profit Ethereum Foundation claims that this upgrade will lead to more scalability, security and sustainability.
The merger will take place between 10 and 20 September. It is hailed by some as a leap forward that will address a common crypto criticism of high energy use. However, some experts have argued that there are still various challenges that the merger is unable to solve.
What is the Ethereum Merger?
Currently, Ethereum works on a proof-of-work (POW) system, which allows the decentralized network to agree on things like account balances and the order of transactions.
It is maintained through the act of “mining”. Simply put, this involves solving complex equations to create new coins and validate transactions on a blockchain network. This is also the method behind the popular cryptocurrency bitcoin.
The process of crypto mining has long been criticized for the amount of energy it uses. A New York Times analysis last year claimed that bitcoin mining consumes around 91 terawatt-hours of electricity annually, which is more than all of Finland.
The Ethereum upgrade involves merging this proof-of-work system with a proof-of-stake layer, which aims to remove the need for energy-intensive mining.
With this method, the network will rely on trusted validators to confirm transactions. These validators will stake capital in the form of some cryptocurrency, which acts as collateral that can be destroyed if the validator “behaves dishonestly or is lazy”.
What are the benefits?
Proponents of this consensus mechanism argue that it will lead to better energy efficiency and lower hardware barriers to entry. According to Ethereum’s website, the merger is expected to reduce the blockchain’s energy consumption by around 99.95pc.
Cronos chief executive Ken Timsit said the merger overcomes a “contentious pain point in the chain’s evolution”, by providing a solution to its “excessive energy consumption”.
Blockchain platform Lisk co-founder Max Kordek said the merger is not “groundbreaking” as POS blockchains have been around for years.
However, Kordek said the merger is “proof that it can change”, showing the potential for major improvements to be made to the network.
“Rather, the biggest change for Ethereum is the proof that it can change. This update will show that major improvements can be implemented, as well as adopted by the network.
“The merger will help global sentiment towards crypto and Web3 because the second largest blockchain is greening,” Kordek said. “This is also a necessary step for Ethereum to reverse bitcoin, which I predict will happen in the next big bull run.”
The Ethereum website said the merger “sets the stage” for future scaling upgrades such as sharding, which involves splitting the main blockchain into separate segments.
What are the problems?
While many support the change, some concerns have been raised that other issues need to be addressed to help the mainstream adoption of the blockchain. Timsit noted several challenges that will persist after the merger.
“It does not improve remaining challenges around scalability, transaction fees or ease of use, with proof-of-stake blocks only being produced (about) 10pc faster than proof-of-work blocks,” Timsit said.
CMO of Swirlds Labs, Christian Hasker, said the merger achieves a lot, but it does nothing to reduce the cost of transactions and only provides “a small increase in block space”.
Hasker also noted issues with sustainability requirements, as the current POW network called the beacon chain relies on around 410,000 validators to produce the blocks on the chain.
“As such, their energy consumption will remain significantly higher per transaction than on any other proof-of-stake networks,” Hasker said.
The impending upgrade has led to an increase in mining activity, as some expect a price increase in the wake of the merger. The number of people mining the cryptocurrency has reached a four-year high, CoinTelegraph reports.
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