The Ethereum Merge is Here: What Changed?

Published September 20th, 2022 - 12:00 GMT
The Ethereum Merge is Here: What Changed?
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To quench your thirst here’s what the merge changed and why is it a pivotal step for Ethereum.

After a six-year buildup, the Merge is finally here. Ethereum's long-promised technological overhaul to phase down energy-intensive GPU mining has been implemented. This means that the blockchain which underpins the world's second-largest crypto token “ether” switched over to a 'Proof of Stake' algorithm. 

The Ethereum Merge is Here: What Changed?

But you must be wondering, what this big upgrade that ushered in a new era of a more sustainable future for cryptocurrencies has changed. Well, the Ethereum Foundation has always worked on a lengthy development roadmap, and the Merge is no exception. According to Buterin, the Merge was the first step in a five-part process that will eventually bring the smart contract blockchain to an "endgame" of Ethereum's growth.

To quench your thirst here’s what the merge changed and why is it a pivotal step for Ethereum.

The Merge Means Less Energy

"The Merge" indicates Ethereum has reduced its power consumption requirements by up to 99.95%. 

According to CBS news, the Ethereum blockchain consumes approximately 112 terawatt-hours of electricity per year, which is nearly equivalent to the amount of energy used to power the Netherlands. This level of energy use emits around 53 metric tons of damaging carbon emissions into the atmosphere each year, which is the same amount that Singapore produces in a year. It is predicted to require slightly more than 2,600 megawatt-hours per year in the future.

It also means that cryptocurrency miners can no longer generate (mine) Ethereum using their PC graphics cards. Instead, they'll have to store their ETH on the network. As a result of this shift, Ethermine, the largest Ethereum mining pool provider in the world by computer power, shut down its servers for miners. 

The Merge Means More Scalability

Before the Merge, Ethereum could handle 15 transactions per second. However, after the Merge, the blockchain may potentially handle up to 100,000 transactions per second — far above what Visa and Mastercard can manage.

The Merge, however, will not address all of Ethereum's challenges in the aspect of scalability. That will not happen completely until the last step of Ethereum's huge technical upgrade, which is expected sometime next year. The "Shard Chains" improvement will make the network more scalable, alleviating congestion and lowering transaction fees.

Sharding divides validation work into smaller chunks, allowing the network to process more transactions. This could increase the number of participants in the Ethereum network by allowing devices such as phones to become nodes, potentially alleviating the congestion stated above. But here's the catch: sharding is only possible after the merge. It does not yet exist on the Ethereum network, but developers want to add it next year according to Buterin's plans.

The Merge Means Less Security

As a general rule of thumb, mining or Proof of Work is known best for its security. In the run-up to The Merge, scammers took advantage of the ambiguity surrounding the word 'Eth2' to try to trick users into exchanging their ETH for an 'ETH2' token. There is no 'ETH2,' and The Merge introduced no other legal coin, according to the Ethereum Foundation website

The ETH you had before The Merge, you still own the same ETH.

Also, security experts warn that if Ethereum validation participation becomes more centralized, it becomes more likely that a "51 percent attack" will occur. This leads us to our next downside of the Merge - less decentralization. 

The Merge Means Less Decentralization

This is because Proof of Stake favors those who have more. In order to become an Ethereum validator who runs a node, one must deposit at least 32 ether — nearly $52,000 — and agree to retain the tokens in a separate account. According to such restrictions, anyone who does not have that much cryptocurrency cannot serve to validate Ethereum transactions.

According to a recent Dune Analytics study, Lido and Coinbase are presently the two biggest Ethereum holders, each holding 4.16 million ETH (30.1%) of the total. 3.65 million ETH (26.5%) are held by the remaining stakeholders, who are categorized as "other."

The Merge Makes Ether Deflationary

A total of 13,000 Ethereum are paid out to miners each day using proof of work. The Ethereum Foundation has stated that this number will be decreased by 90% when Ethereum switches to proof of stake. As a result, 1,600 Ethereum will be awarded daily to all stakers. 

Additionally, as part of the EIP-1559 upgrade from last year, a specific amount of ETH that is paid to the network in transaction fees will be burned. So this cut in issuance rate and the burning means less Ether in circulation which will make it a deflationary currency with time.

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