In this article, we share everything you need to know about the Ethereum merge. You might think crypto is the future, or you might consider it a scam. Whichever camp you are on, the upcoming Ethereum Fusion is an important day. The long-delayed Ethereum blockchain upgrade is currently scheduled for September 15. If successful, the blockchain's massive electricity needs will drop by more than 99%.
It is of enormous consequence. Cryptocurrency critics argue that coins like bitcoin and ether are useless and consume huge amounts of electricity. The first point is polarizing and subjective, but the second is unequivocally true . At a time when more people than ever see mitigating climate change as society's highest priority, the carbon emissions of bitcoin and ethereum are too visible to ignore.
In the merger, Ethereum will adopt a system known as proof-of-stake , which has been planned since before the blockchain was created in 2014. Due to its technical complexity and the increasingly large sums at risk, it has been repeatedly delayed. The merger is part of what used to be called “ether 2.0,” a series of upgrades that are reshaping the foundations of blockchain.
"We've been working on proof-of-stake for about seven years now," said Vitalik Buterin, co-creator of Ethereum. said at the Eth Shanghai conference in March “but finally all this work is falling into place.”
Here's everything you need to know to make sense of the big day.
Why is crypto bad for the environment?
To understand the merger, you must first understand the role of cryptocurrency miners.
Let's say you wanted to mine cryptocurrency. You would configure a powerful computer – a mining rig – to run software that would attempt 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 crypto first, you earn the right to “validate” a block, i.e. add new data to the blockchain.
This gives you a reward: Bitcoin miners get 6.25 bitcoins ($129,000) for every block they check, while Ethereum miners get 2 ether ($2,400) plus gas, which are the fees that users pay on each transaction (which can be huge).
It takes a powerful computer to stand a chance in this race, and people usually set up warehouses full of rigs for this purpose. This system is called “proof of work”, and it is how bitcoin and ethereum blockchains work. The thing is, it allows the blockchain to be decentralized and secure at the same time.
It takes a powerful computer to stand a chance in this race, and people usually set up warehouses full of rigs for this purpose. This system is called “proof of work”, and it is how bitcoin and ethereum blockchains work. The thing is, it allows the blockchain to be decentralized and secure at the same time.
"It's called the sybil resistance mechanism," said Delphi Digital analyst Jon Charbonneau. Every blockchain must run on a scarce resource, Charbonneau explained, a resource that bad actors cannot monopolize. For proof-of-work blockchains, that resource is energy — in the form of the electricity needed to run a mining operation.
To overtake Ethereum right now, a bad actor would need to control 51% of the power of the network. The network is made up of hundreds of thousands of computers around the world, which means the bad guys would need to control 51% of the power of this vast mining pool. It would cost billions of dollars.
The system is secure. Although scams and hacks are common in crypto, neither bitcoin nor ethereum blockchains themselves have been compromised in the past. The downside, however, is obvious. As cryptographic puzzles get more complicated and more miners compete to solve them, the energy expenditure skyrockets.
How Much Energy Does Crypto Use?
Tonnes and tonnes. It is estimated that Bitcoin consumes around 150 terawatt hours per year, which is more electricity than 45 million people in Argentina. Ethereum is closer to 9 million Swiss consuming around 62 million terawatt hours.
Much of this energy comes from renewable sources. About 57% of the energy used to mine bitcoin comes from renewable sources, according to the Bitcoin Mining Council (BMC relies on self-reporting by its members).
This is not driven by climate awareness but by self-interest: renewable energy is cheap, so mining operations are often installed near wind, solar or hydroelectric parks.
However, the carbon footprint is considerable. Ethereum is estimated to emit carbon dioxide on a similar scale to Denmark.
How will the merge help?
The merger will see Ethereum completely get rid of proof-of-work, the energy-intensive system it currently uses, in favor of proof-of-stake.
In the land of cryptos, “staking” refers to the deposit of cryptocurrency on a protocol. Sometimes this may be to generate interest. For example, the creators of the terraUSD stablecoin offered customers 19% interest on the staked TerraUSD: you can invest $10,000 and withdraw $11,900 after one year ( until it implodes ).
Other times, such as with a proof-of-stake blockchain, the staked cryptocurrency helps secure a protocol. As we will soon see, the more ether staked, the more secure the blockchain will be after the merge.
When proof of stake goes into effect, miners will no longer have to solve cryptographic puzzles to verify new blocks. Instead, they will deposit Ether Tokens into a 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 earn the rewards that entails.
It's still an expensive business. Prospective block verifiers – who will be known as “validators” instead of miners – must stake a minimum of 32 ether ($48,500) to be eligible. This system sees bettors putting up raw capital, rather than power, to validate blocks.
While a bad actor needs 51% of a network's power to beat a proof-of-work system, they would need 51% of the total ether staked to beat the proof-of-stake system. The more total ether is staked, the safer the network becomes as the cost to reach 51% of its capital increases.
Since crypto puzzles will no longer be part of the system, electricity expenses will decrease by around 99.65%, according to the Ethereum Foundation.
Why is it called “the fusion”?
Ethereum will move from proof-of-work to proof-of-stake through the merger of two blockchains.
The Ethereum blockchain that people use is known as “mainnet”, as opposed to the various “testnet” blockchains which are only used by developers. In December 2020, Ethereum developers created a new network called the Beacon Chain. The beacon chain is essentially the new ethereum.
The beacon chain is a proof-of-stake chain that has been running in isolation since its inception 18 months ago. Validators added blocks to the chain, but those blocks contained no data or transactions. Essentially, it was put through various stress tests before the big day.
The merger will see data held on the Ethereum mainnet transferred to the beacon chain, which will then become the main blockchain on the Ethereum network. In preparation for the merger, Ethereum developers tested the new blockchain by running data and transactions on it on various Ethereum testnets.
“After talking to Ethereum developers, they said they were confident that if proof-of-work mining had been, say, banned overnight, they could do the merge even months ago and it would work. said Charbonneau. The concern is that there are bugs in Ethereum “clients” — software that can read Ethereum data and mine blocks — that could take months to fix.
Ethereum developers are very careful, Charbonneau said, to ensure that the different clients used by validators can work together at merge time.
Are there any risks?
Absolutely. Ethereum critics — usually bitcoin enthusiasts — liken the merger to changing an airplane's engine in the middle of a passenger flight. At stake is not just the plane, but the $183 billion worth of ether in circulation.
Technically, there could be many unforeseen bugs with the new blockchain. Solana, another proof-of-stake blockchain, suffered several complete outages this year. Solana and Ethereum differ in that Solana's fees are tiny, meaning it's easier for bots to overwhelm the blockchain, but technical difficulties aren't out of the question.
Critics also question whether proof-of-stake will be as secure as proof-of-work. Charbonneau feels it might be safer due to a feature called “slashing” – in essence, validators can have their staked ether burned and network access revoked, if they are found to have acted in a way malicious.
"Let's say someone at 51% attacks bitcoin today, there's really nothing you can do," Charbonneau said. “They have all the miners and they might keep attacking you. With proof of stake, it's very simple. If you attack the network, it's provable and we cut you, and your money is gone.”
“You get a ball, and then that's it. Then you can't do it again."
Will this drive up the price of Ether?
Ether is down around 60% since the start of the year, and many are hoping that the merger will boost its price. This has been a hotly debated topic in crypto circles for the past few months, and no one knows for sure what the merger will do to the price of Ether.
There are two main reasons why people predict that the price of ether will skyrocket after the merge. The first is the idea that Ethereum splitting its carbon footprint will make it easier for large companies to invest in Ethereum and build Ethereum applications.
“The reality is that if you take out the environmentally conscious part, there are a lot of people who won't use it [ethereum] and don't want to invest in it just for ESG reasons,” Charbonneau said, referring to environmental, social and corporate governance standards for ethical investing.
The second argument people make is a bit more technical. Ethereum mining is expensive; As electricity prices rose and crypto prices fell, even successful mining operations began to see red. To offset costs, miners typically sell most of the cryptocurrency they earn from mining.
This creates millions of dollars in selling pressure every day as miners unload their ether. Once Ethereum is proof-of-stake, miners (or “validators” as they'll be called) won't have to sell all the ether they earn, because validating blocks is so much cheaper than clearing them. exploit via proof-of-work cryptography.
Others argue, however, that the merger is already priced in. It has been in the works for seven years and many big investors, the argument goes, have put money into Ethereum in the hope that the merger will succeed.
When will the merger take place?
The merger is expected to take place in September. The most recent tentative date of September 15 was given during a developer call on Thursday August 11. This date is actually earlier than expected: September 19 had already been penciled in as the big day.
Ether rose significantly as the merger got closer. The cryptocurrency is currently hovering around $2,000, a nearly 60% jump from July, before Ethereum Foundation developers set a date. It is still a long way from its peak of $4,800, but encouraging news for Ethereum enthusiasts in a cold cryptocurrency winter.
READ MORE: A New Fork For Ethereum After The Merge
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