Author: Andrew R. Chow
Compilation of the original text: Nanfeng
One of the most significant shifts in Crypto’s history will occur when the Ethereum blockchain completes a software update known as a “merge.”
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How the Ethereum blockchain will work — and why it matters
To understand mergers, it is important to first understand why people use blockchains. One of the most important ideas of the technology is that there is no central authority that can control it. For example, while a government can manipulate the central bank as it pleases, blockchain should not be subject to such pressure. It should be self-sustaining and decentralized in power.
For years, Bitcoin and Ethereum — the two largest blockchains — have operated without a controlling entity, thanks to a process called Proof of Work . In this mechanism, the blockchain is operated and secured by "miners" who approve new valid transactions by solving complex mathematical puzzles and are rewarded through the blockchain's "currency". The complexity of these mathematical puzzles makes it very difficult for hackers or tamperers to cheat in the system.
But solving these puzzles takes a huge amount of energy. All over the world, miners build giant computing devices that run day and night, consuming vast amounts of electricity while solving these difficult problems. The study estimates that bitcoin mining consumes more electricity globally annually than most countries, including the Philippines and Kazakhstan.
The enormous energy consumption of proof-of-work — which is also built into the mechanism — has drawn widespread criticism from environmental groups, especially as countries try to reduce greenhouse gas emissions to combat climate change. Some engineers believe that proof-of-work also has design problems in terms of security and scalability. So when the first developers of Ethereum started building the network based on Proof of Work in 2014, they were already considering an eventual switch to a new, untested system called Proof of Stake. (Proof of Stake).
In Proof of Stake, energy-hungry miners are replaced by gatekeepers called "validators" who deposit large amounts of funds (32 ETH, worth about $50,000 at the time of writing) into the Ethereum network , to be able to approve or reject the transaction. Just like miners, they are rewarded with funds for doing so. Under this system, hackers or malicious actors need to invest a large amount of funds in the system, and in the process, if they are found to be malicious and kicked out of the system, they risk losing these funds.
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Potential positive effects of the merger
The developers hope the risky move is worth it for several reasons. The first is environmental issues. Since miners no longer have an economic incentive to keep their computers running 24 hours, the network's energy usage will drop by more than 99%, according to researchers at the Ethereum Foundation. Mike Brune, head of the climate change movement "Change the Code/Not the Climate," wrote in a statement to Time magazine that the merger is an important step in the right direction, and he hopes Bitcoin will follow suit. on the same path. He wrote:
“As fires rage across the world and historic floods destroy lives and livelihoods, state and federal government leaders and corporate executives are racing to decarbonize as quickly as possible.” “Ethereum has shown that switching to energy-efficient protocols is possible , and would significantly reduce pollution of the climate, air and water pollution.”
Increased energy efficiency can be good for business. Many traditional companies and financial institutions have expressed concerns about fully investing in Ethereum due to Ethereum's huge carbon footprint. Ethereum founder Vitalik Buterin acknowledged as much in February of this year, and actually encouraged skeptics to wait to use the blockchain until it is less environmentally damaging.
If the merger goes well, corporate adoption could accelerate, especially those with environmental, social and governance (ESG) requirements. Joe Lubin, the co-founder of ethereum and founder of blockchain company Consensys, told TIME that he has spoken to several "major financial institutions" that have been waiting to merge for "significant participation" in ethereum. in the workshop.
Many other would-be users stayed away from Ethereum due to its high fees and congestion. The network isn't ready for a dramatic increase in users in 2021, forcing some to pay hundreds of dollars in transaction fees.
The merger won't eliminate these fees, but ethereum's developers say its completion will lay the groundwork for them to roll out new technologies to scale the ethereum network. The most critical tool is called sharding, which divides network data into smaller partitions, making the network faster and cheaper to use. Vitalik Buterin said in February that sharding could eventually bring fees down to around 5 cents and bring back many Crypto users who have ditched ethereum for other cheaper blockchains like Solana and Avalanche.
“It will take time to get there, but it basically brings us to a throughput architecture that can handle infinite transactions per second,” said Joe Lubin. “It’s going to internet scale.”
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but there are many risks
But mergers also come with huge risks. Ethereum is the main network for the frenzy of crypto activity that has taken place over the past two years, including NFTs, decentralized finance (DeFi), and decentralized autonomous organizations (DAOs). If something goes wrong during this transition, the fortunes of all these apps and organizations — which collectively manage more than $50 billion in user funds — will be at risk.
Either way, the merger will be seamless and non-disruptive for users, Joe Lubin predicts. "It's like Apple (Apple) updating the iPhone's operating system overnight and you turn on your computer in the morning and don't even know what's going on," he said.
A merger could also lead to a split in Ethereum's user base. Given that Ethereum is decentralized, no one will force users to switch to the new system. If enough users or platforms decide to stick with the old proof-of-work version of Ethereum, there could be massive confusion and confusion as to where the token's true value lies. Some proof-of-work miners have indicated that they intend to resist the merger and have begun jumping back to an older version of the ethereum blockchain, now known as ethereum classic.
However, many of these miners are just looking for their bottom line, as the mining equipment they invested in will quickly become useless to Ethereum once Ethereum switches to Proof-of-Stake. Almost every other ethereum user said they would switch to a proof-of-stake chain, making an all-out civil war unlikely.
Lubin said: "I think at least a temporary fork is possible: this is an opportunity to get ETH quickly, and there are many opportunists. But I can't imagine it will be on a line where so many things are fundamentally broken and abandoned. build anything on top of the old chain, or put anything of significant value on it.”
Finally, some worry that the merger will make ethereum more vulnerable to scrutiny in the larger battle between cryptocurrencies and the U.S. government. Last month, the U.S. Treasury Department banned Americans from using Tornado Cash, a service that helps crypto owners protect their anonymity. Any user interacting with addresses associated with Tornado Cash is at risk of violating US sanctions. Therefore, a large-scale proof-of-stake validator like Coinbase may choose to censor any Tornado Cash-related transactions to comply with government requirements. Such actions would run counter to Crypto's philosophy of decentralization.
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what happens next
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