What is Merge? Deciphering the future of the Crypto World
Cryptocurrency mining is extremely energy intensive and considered an environmental menace. Until recently, Ethereum was just another power-hungry cryptocurrency, but The Merge just fixed that.
With The Merge, the Ethereum blockchain has moved its consensus from proof-of-work to proof-of-stake and will burn significantly less ether (up to 99.95% less carbon footprint) compared to the previous proof-of-work method which used to burn billions of dollars’ worth of ether per year. I’m aboard the train of a greener earth and becoming more eco-friendly with sustainability while saving natural resources, which The Merge has helped further.
What is Merge?
The Merge is an upgrade of the Ethereum blockchain from a proof-of-work to a proof-of-stake system for authenticating new transactions. The new system replaces the old power-guzzling system.
With the Merge, the crypto industry sees an immediate slew of advantages:
- Remains a decentralized platform
- Extremely secure transactions
- Up to 99% power efficiency compared to proof-of-work currencies like Bitcoin
- Eliminates the need for miners and mining farms to authenticate transactions
Why is ‘The Merge’ a Marvel?
The open-sourced Ethereum is the host of DeFi protocols, NFTs, and cryptocurrencies valued at over a hundred billions dollars. All these digital assets were at stake, possibly being wiped out or irrevocably broken. The blockchain system verifies and processes new crypto transactions and migrating to a new type of system on the go is no simple feat by any means! It is akin to replacing an engine midflight without hiccups, but all it took for the merge to unfold was 15 minutes! I’ve been unwilling to participate in many Windows updates, which took more time, and I couldn’t use my device during the process!
It was around 2018 that I played around with cryptocurrency and even made a small profit. While I know many people who still gamble in the crypto market, I’ve since chosen to be a curious spectator of the volatile cryptocurrency market. Many cryptocurrencies have debuted and seen their demise rapidly, but the two giants that have flourished so far are Bitcoin and Ethereum.
With The Merge, Ethereum is Now Environmental Friendly
It is a well-known fact that cryptocurrencies are power guzzlers.
I vividly remember the GPU hoarding craze recently and the large server farms used for Ethereum mining. The sheer power required to mine cryptocurrency is astounding and can power small-sized European countries!
This revolutionary feat made Ethereum 100x more efficient than before and that, which is nothing to scoff at. The long-term gains and the operational efficiency are remarkable and have left me awe-struck.
For all the environmental aficionados, The Merge is more of a festival thanks to the decrease in Ethereum’s footprint. However, that is more of a moral victory in anyone’s book
What Did This Mean for Investors and The Industry?
The Merge resulted in an interesting reaction from miners. I was excited about the energy efficiency and have been glued to crypto news, only to find that miners have moved on to greener pastures mining other currencies. The Merge has not created any substantial value for Ethereum as of now. Last I checked, Ethereum stood at a market capitalization of over $164 billion after the Merge. It used to hover over $200 billion.
The most significant advantage is that security will increase thanks to the proof-of-stake, which opens the option for varied granular incentives, unlike the proof-of-work consensus. This is because each validator’s stake is accessible.
I’m interested in seeing what types of rewards the stakeholders will earn. In the new consensus, validators are called stakeholders (people who stake a minimum of 32 Ethereum) in a secure network where trading is prohibited. In simple words, users earn Ethers by locking up their coins and validating transactions. It is impossible to predict the staking yields as more than 13.7 million ETH have been locked in the staking contract. stakeholders won’t be able to withdraw until a mid-2023 update. This should bring a little more structural stability and safety to Ethereum trading.
This is vital as the reputation of Cryptocurrencies in the past years has been tarnished thanks to hacks, scams, and billions of dollars lost due to new crypto companies shutting shop. I know a few people who bet big on Dogecoins, who thought it was the next Bitcoin but were left dejected.
The Merge Makes Ethereum More Secure Against Attacks
A significant upgrade I see is that the amount of Ethereum staked instead of resources spent defines network control. With the proof-of-work method, groups with large server farms could join forces to attack the network and sabotage others’ chances to update the ledger, opening options for higher rewards. With the new consensus, anyone trying to do that would be punished.
Although it seems like some people in the industry are a bit more apprehensive about the development. I was surprised by Changpeng Zhao, Binance’s CEO’s take on the Merge. According to him, the drop in Ethereum transaction fees is still a long-term reality, as he doesn’t expect it to fall drastically overnight. That seems to be the popular opinion, but the story might change in the long run.
Ethereum’s biggest competitor, Bitcoin, has no plans for such a migration. It is still energy-intensive and continues to run on the proven proof-of-work consensus. In fact, it was Bitcoin that pioneered the consensus, and Ethereum just followed suit. But competitors are not Ethereum’s concern now when enemies are in their camp.
Some Ethereum miners against the new consensus are fighting to keep the proof-of-work system alive. Their future is anyone’s guess as it’s impossible to determine the future token value.
Personally, other than the environmental-friendly badge, I don’t see any short-term advantages of The Merge.
What’s next for crypto?
The heavy carbon footprint was the least of the issues with Crypto’s bad reputation.
In my opinion, one of the biggest threats to Crypto has been government regulations, thanks to the various crypto scams. An imminent ransomware threat, major scams and a lack of proper understanding of the technology means the government will always be apprehensive about regulating cryptocurrencies. The Security and Exchange Commission’s recent claim that all Ethereum transactions belong to them raises many questions. Teething troubles post- The Merge, or any such innovation, are not surprising, but the division in the crypto community and the after-effects remain to be seen in the long run.
With the eco-friendly badge, I’m hoping the government regulations become a little more lenient and have a more explicit stance on cryptocurrencies. A clearer legal picture will give cryptocurrencies the much-needed relief and attract more people to invest in them. If eco-friendly cryptocurrencies are favored more by the government, we may see others jump ship, but I don’t speculate that happening anytime soon.
With The Merge, we only have bragging rights about the eco-friendly aspect. However, that will possibly soften governments’ legal stance on cryptocurrencies worldwide.
Don’t get me wrong, the Merge, to me, is a technical feat and is the right step towards a greener earth, but the lack of profitability for stakeholders meant that this was bound to happen. As I mentioned earlier, legal troubles seem to accompany cryptocurrencies. With the Merge, Ethereum is now even more secure, but it seems to have attracted some controversial attention.
Gagan Mahajan heads the Entertainment, Tech & Media Practice at Affine. Affine is a pioneer and a veteran in the data analytics industry and has worked with giants like Warner Bros Theatricals, Zee 5, Disney Studios, Sony, Epic, and many other marquee organizations. From game analytics and media and entertainment to travel & tourism, Affine has been instrumental in the success stories of many Fortune 500 global organizations; and is an expert in personalization science with its prowess in AI & ML.
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