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What is an Ethereum merger?

Ethereum, the blockchain driving the rise of non-fungible tokens (NFTs), is about to launch One of the most talked about experiments in crypto world.

Around September 15, the process verifying encrypted transactions will From so-called Proof of Work to Proof of Stake . According to the Ethereum Foundation, the so-called “merger” will immediately reduce ethereum’s carbon emissions by 99 percent.

Kristin King, a crypto researcher at Galaxy Digital, called it a “long-awaited upgrade in Ethereum history,” even before the blockchain launched in 2015. Promised to the user. But moving to a more sustainable and secure consensus mechanism has implications beyond the Ethereum universe.

This merger will test whether proof-of-stake can Running at scale – its ether (ETH) cryptocurrencies currently account for the entire 1.12 trillion according to CoinMarketCap One-fifth of the U.S. dollar cryptocurrency market capitalization. If it does work, it could make ethereum more popular with traditional investors.

In August, news of the combined release date pushed ETH above $2,000 for the first time since May. As of this writing, the price has fallen back below $1,700.

What is Proof of Stake?

Proof of Work is the original blockchain consensus mechanism. Under this system, pioneered by Bitcoin and currently used by Ethereum, cryptocurrencies are created or “mined” by computers that compete with each other to solve complex algorithmic problems. It makes the act of mining and validating transactions on the blockchain energy-intensive, preventing some traditional investors from putting money into cryptocurrencies.

Proof of Stake on the other hand records transactions without using Any electricity or other real economic resource. Instead, users who verify transactions (called validators) stake (or stake) ether to earn the right to record new transaction data on the blockchain.

“In proof-of-work, you have to run this computation to get paid for the role,” said University of Toronto economist Joshua Gans. “In Proof of Stake, it’s more like you’re buying a lottery ticket.” Taking the Gans analogy further, the more lottery tickets a user buys, the greater the chance of winning and earning newly minted ETH.

In an August research note, JPMorgan analysts wrote that the merger could help bring crypto Currencies are pushed further into the mainstream, not only because of the green process of proof-of-stake, but also because of the financial incentives that users have to stake their ETH and earn from it.

Hacking Ethereum is about to get harder

In addition to boosting Ethereum’s green reputation and providing users with additional economic incentives, Merge promises to make the system more resilient to attacks.

Most blockchain networks are at risk of a so-called 51% attack. This is when a bad actor gains control of more than 50% of the computing power (or 50% of equity assets in the case of proof-of-stake) needed to confirm a transaction.

Because there are already around $25 billion staked on chain, will merge into Ethereum and turn it into a proof-of-stake blockchain, it would take an attacker $25 billion to overwhelm Ethereum Square. network, said Ethereum Foundation researcher Justin Drake.

Compared to According to Drake’s estimates, it would only take $5 billion to be able to buy enough mining equipment to overwhelm the current proof-of-work network.

“$5 billion is a lot, but it’s a piece of cake for a nation-state,” Drake said. (One of the goals of the crypto industry is to create a cryptocurrency that cannot be tampered with by any government.)

Many other blockchains, including Cardano, Avalanche, and Polkadot, already operate on Proof of Stake , but when the merger happens, Ethereum will be by far the largest blockchain network running on proof-of-stake.

Who did the merger hurt?

On the day of the open and merge, most Ethereum users will be running on the new consensus mechanism without having to do anything . But miners who want to become validators must start staking at least 32 ETH to ensure they can validate transactions on the new chain. The exchange will suspend ETH deposits and withdrawals until the transition is complete.

Those who have invested thousands of dollars in mining machinery (called a rig) will have to figure out how to sell it or repurpose it as the upgraded network will not need that rig.

Some people may choose to continue mining instead of staking, and the founders of Ethereum cannot stop them from doing so. So it is likely that Ethereum will split in two – or fork .

But old-fashioned mining operations may be less profitable. For Ethereum alternatives based on proof-of-work, such as Ethereum Classic (ETC), the result of a previous fork, And in a proposed fork called ETHW, the profit margin represents “a fraction of the profitability of mining ETH,” Kim said.



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