Ethereum Merge is important, and not just for crypto people. In the works in one form or another since 2014, the long-delayed Merge will see the second largest blockchain massively reduce its carbon emissions. If the merger is successful, ethereum’s electricity requirements will be reduced by more than 99%.
This is a big consequence. Cryptocurrency critics argue that coins like bitcoin and ether are useless and use huge amounts of electricity. The first point is polarizing and subjective, however. At a time when more people are looking at mitigating climate change as society’s No. 1 priority, the carbon emissions of bitcoin and ethereum are too noticeable to ignore.
In the merger, ethereum will adopt a system known as proof of stake, which was planned before the creation of the blockchain in 2014. It has been repeatedly postponed due to technical complexity and the increasingly large amount of money at stake. The merger is part of a series of improvements that are reshaping the foundations of the blockchain, formerly called “ether 2.0.” Mid-September is the deadline for the goal.
Ethereum founder Vitalik Buterin said at the Eth Shanghai conference in March: “We’ve been working on proof of stake for about seven years, but finally it’s all coming together.”
Here’s everything you need to know to make sense of the big day.
Why is cryptocurrency bad for the environment?
To understand the merger, you must first understand the role of cryptocurrency miners.
Let’s say you want to buy cryptocurrency. You would build a powerful computer — a mining rig — to run software that tries to solve complex cryptographic puzzles. Your rig competes with hundreds of thousands of miners around the world trying to solve the same puzzle. If your computer cracks the cryptography first, you earn the right to “validate” the block, that is, add new data to the blockchain. Doing so rewards you: Bitcoin miners get 6.25 bitcoins ($129,000) for each block they confirm, while ethereum miners get 2 ether ($2,400) plus gas, which are the fees users pay for each transaction (which is huge can be).
A powerful computer is required to have a chance at this race, and people usually build warehouses full of devices for this purpose. This system is called “proof of work” and is how both the bitcoin and ethereum blockchains work. The point is that it allows the blockchain to be decentralized and secure at the same time.
“It’s what’s called a civil resistance mechanism,” said Jon Charbonneau, an analyst at Delphi Digital. Charbonneau explained that every blockchain must run on a scarce resource that bad actors cannot monopolize. For proof-of-work blockchains, this resource is power – in the form of electricity required to run a mining operation.
Currently, to overtake ethereum, a bad actor would need to control 51% of the network’s power. The network consists of hundreds of thousands of computers worldwide, meaning that the bad guys must control 51% of the power in this large mining pool. Doing so would cost billions of dollars.
The system is secure. While scams and hacks are common in cryptocurrency, neither the bitcoin nor the ethereum blockchains themselves have been compromised in the past. However, the downside is obvious. As cryptographic puzzles become more complex and more miners compete to solve them, energy costs increase.
How Much Energy Does Cryptocurrency Use?
Lots and lots. Bitcoin is estimated to consume about 150 terawatt hours per year, which is more than the electricity used by 45 million people in Argentina. Ethereum is closer to 9 million citizens of Switzerland and consumes about 62 million terawatt hours.
Most of this energy comes from renewable sources. According to the Bitcoin Mining Council, about 57% of the energy used to mine bitcoin comes from renewable sources. (The BMC relies on its own reporting among its members.) This is motivated not by climate conscience but by self-interest: Renewable energy is cheap, so mining operations are often set up near wind, solar or hydro farms.
However, the carbon footprint is extensive. Ethereum is estimated to emit carbon dioxide on a similar scale to Denmark.
How will the merger help?
The merger will see ethereum completely lose its proof-of-work, the energy-intensive system it currently uses, in favor of proof-of-stake.
A “stake” in cryptocurrency refers to investing in cryptocurrency to earn interest. For example, the creators of the terraUSD stablecoin offered customers 19% interest on staked TerraUSD: You can deposit $10,000 and withdraw $11,900 after one year ().
When proof-of-stake takes effect, miners will no longer have to solve cryptographic puzzles to verify new blocks. Instead, they will deposit ether tokens into the pool. Imagine that each of these tokens is a lottery ticket: If your token number is called, you earn the right to check the next block and win rewards that result.
It is still an expensive enterprise. Potential block validators — who will be known as “validators” instead of miners — must stake a minimum of 32 ether ($48,500) to qualify. This system sees punters put raw capital, not power, into validating blocks. While a bad actor needs 51% of the network’s power to overcome a proof-of-stake system, it needs 51% of the total staked ether to overcome a proof-of-stake system.
According to the Ethereum Foundation, cryptographic puzzles will no longer be part of the system, reducing electricity costs by about 99.65%.
Why is it called “Combination”?
The way Ethereum will move from proof-of-work to proof-of-stake will be achieved by merging the two blockchains.
The ethereum blockchain that people use is known as the “mainnet,” as opposed to the various “testnet” blockchains used only by developers. In December 2020, Ethereum developers created a new network called the beacon chain. Beacon chain is essentially the new ethereum.
Beacon Chain is a proven chain that has been running in isolation since its inception 18 months ago. Validators add blocks to the chain, but these blocks do not contain any data or transactions. In fact, he underwent various stress tests before the big day.
The merger will see data stored on Ethereum’s mainnet transferred to the beacon chain, which will then become the main blockchain on the ethereum network. Ahead of the Merge, ethereum developers stress-tested the new blockchain by running data and transactions on various ethereum testnets.
“If you talk to ethereum developers, and I have, they’ll tell you that if proof-of-work mining were banned overnight, they could Merge now and that would be fine,” Charbonneau said. Most of the ironing developers are currently doing is for applications and clients built on top of ethereum, he added, not the proof-of-concept itself. “If they did the Merger today, it would be a few months wrong … but the protocol itself, no worries. [among the developers].”
Are there risks?
Absolutely. Ethereum’s critics—usually bitcoin enthusiasts—liken the merger to changing the engine of an airplane in the middle of a passenger flight. It’s not just the plane, it’s the $183 billion worth of air in circulation.
On a technical level, with the new blockchain, there can be many unexpected errors. Solana, another proof-of-concept blockchain, has suffered several outages this year. Solana and ethereum differ in that solana fees are small, which means that it is easier for bots to bypass the blockchain, but there is no question of technical difficulties.
Critics also wonder whether proof of risk will be as valid as proof of work. Charbonneau believes it could be more secure because of a so-called “cutoff” feature — essentially, if validators are found to be acting maliciously, their staked ether can be burned and access to the network revoked.
“Let’s say someone 51% attacks bitcoin today, you can’t really do anything,” Charbonneau said. “They have all the miners and they could keep attacking you. … With proof of stake, it’s really simple. If you attack the network, it’s provable and we just cut you off, and then your money is gone.”
“You get one shot, and then that. Then you can’t do it again.”
Will it cause the price of ether to rise?
Ether is down nearly 60% since the beginning of the year, and many are hoping that Merge will revive its price. This has been a hot topic of discussion in cryptocurrency circles in recent months, but the answer is that no one knows for sure what Merge will do to the price of ether.
There are two main reasons why people are predicting that the price of Ether will skyrocket after the Merger. The first is the idea that ethereum splitting its carbon footprint will make it easier for large companies to both invest in ethereum and build ethereum applications.
“The reality is, if you take away the environmental part, there are a lot of people who won’t use it. [ethereum] and I don’t want to invest in it based solely on ESG reasons,” Charbonneau said, referring to environmental, social and corporate governance standards for ethical investing. “There are a lot of tech companies that are clearly saying, ‘We won’t. Anything after the merger.'”
People’s second argument is a bit more technical. Ethereum mining is expensive; As electricity prices rose and cryptocurrency prices fell, even successful mining operations began to see red. To cover costs, miners usually sell most of the cryptocurrency they earn from mining. This creates millions of dollars of selling pressure every day as miners unload their ether. Once Ethereum’s proof-of-stake miners (or “validators,” as they’re called) don’t have to sell all the ether they earn, because validating blocks is cheaper than mining them through proof-of-work cryptography.
On the other hand, however, many argue that Merge is overpriced. It has been in the works for seven years, and many large investors, the argument goes, are putting money into ethereum, hoping that the Merger will be successful. .
When will the merger take place?
The merger is expected to take place in September. At a recent conference among Ethereum developers, Tim Beiko of the Ethereum Foundation put September 19 as a tentative date.
“This merger timeline isn’t final, but it’s exciting to see it coming together,” tweeted another developer. “Please take this as a planning timeline.”
The announcement saw the price of ether. That’s a long way from $4,800, but it’s encouraging news for ethereum enthusiasts in the cold cryptocurrency winter.