Explanation of the merger of Ethereum – CNET

You might think cryptocurrencies are the future or you might consider them a scam. Regardless of what field you are in, the upcoming Ethereum Merge is a significant day. The long-delayed upgrade to the ethereum blockchain is currently slated for September 15th. If successful, the blockchain’s huge electricity needs will drop by more than 99%.

This is of enormous importance. Critics of cryptocurrency 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. In an era where more people than ever see climate change mitigation as society’s top priority, the carbon emissions of bitcoin and ethereum are too obvious to ignore.

In the merger, ethereum will adopt a system known as proof of participation, which was planned before the creation of the blockchain in 2014. Due to its technical complexity and the increasing amount of money at risk, it has been delayed several times. The Merge is part of what was formerly called “ether 2.0”, a series of updates that reshape the foundations of the blockchain.

“We have been working on proof of participation for about seven years now,” ethereum co-creator Vitalik Buterin said at the Eth Shanghai conference in March, “but ultimately all of this work is coming to fruition.”

Here’s everything you need to know to make sense of the big day.

Why are cryptocurrencies bad for the environment?

To understand the union, you must first understand the role of cryptocurrency miners.

Suppose you want to mine cryptocurrency. You will install a powerful computer, a mining rig, to run software that attempts 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 decrypts the encryption first, you get the right to “validate” a block – that is, add new data to the blockchain. This gives you a reward: bitcoin miners get 6.25 bitcoins ($ 129,000) for each block they verify, while ethereum miners get 2 ether ($ 2,400) more gas, which is the fees users pay on each. transaction (which can be huge).

It takes a powerful computer to stand a chance in this race, and people typically create warehouses full of platforms for this purpose. This system is called “proof of work” and is how both bitcoin and the ethereum blockchain work. The point is that it allows the blockchain to be decentralized and secure at the same time.

“This is what is called the sibyl resistance mechanism,” said Jon Charbonneau, an analyst at Delphi Digital. Every blockchain needs to run on a scarce resource, Charbonneau explained, which bad actors cannot monopolize. For proof-of-work blockchains, that resource is power, in the form of electricity needed to perform a mining operation.

To overcome Ethereum right now, a bad actor would have 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 should control 51% of the energy in this vast mining pool. Doing so would cost billions of dollars.

The system is safe. While scams and hacks are common in cryptocurrencies, neither bitcoin nor ethereum’s blockchains have been compromised in the past. The downside, however, is obvious. As crypto puzzles become more complicated and more miners compete to solve them, the energy expenditure skyrockets.

How much energy does cryptocurrency consume?

A lot, a lot. Bitcoin is estimated to consume around 150 terawatt hours per year, which is more electricity than that used by 45 million people in Argentina. Ethereum is closer to 9 million Swiss citizens, consuming around 62 million terawatt hours.

Much of that energy comes from renewable sources. About 57% of the energy used to mine bitcoins comes from renewable sources, according to the Bitcoin Mining Council. (BMC relies on self-certification among its members.) This is motivated not by climate awareness but by self-interest: Renewable energy is cheap, so mining operations are often set up near wind, solar, or hydroelectric farms.

However, the carbon footprint is large. Ethereum is estimated to emit carbon dioxide on a similar scale to Denmark.

How will the union help?

The merger will see ethereum completely give up proof of work, the energy-intensive system it currently uses, in favor of proof of participation.

In the land of cryptocurrencies, “staking” refers to the deposit of cryptocurrency on a protocol. Sometimes this can be to generate interest. For example, the creators of the terraUSD stablecoin offered clients a 19% stake on TerraUSD in staking – you could put in $ 10,000 and withdraw $ 11,900 after one year (until it imploded).

Other times, such as with a proof-of-stake blockchain, staking cryptocurrency helps secure a protocol. As we will see shortly, the more the ether is staking, the more secure the blockchain will be after Merge.

Once 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 win the right to verify the next block and earn the rewards it entails.

It is still an expensive undertaking. Potential block verifiers, who will be known as “validators” instead of miners, must aim for a minimum of 32 ether ($ 48,500) to be eligible. This system sees bettors accumulating raw capital, rather than power, to validate blocks. While a bad actor needs 51% of the power of a network to get through a proof-of-work system, he would need 51% of the total ether wagered to get through the proof-of-stake system. The more total ether is aimed, the safer the network becomes as the cost of reaching 51% of its capital increases.

As crypto puzzles will no longer be part of the system, electricity spending will drop by about 99.65%, according to the Ethereum Foundation.

Why is it called ‘the union’?

Ethereum will move from proof of work to proof of stake through the merger of two blockchains.

The ethereum blockchain used by people is known as the “mainnet”, as it is distinct from various “testnet” blockchains used only by developers. In December 2020, the Ethereum developers created a new network called the beacon chain. The chain of beacons is essentially the new ethereum.

The lighthouse chain is a proof-of-stake chain that has been going on in isolation since its creation 18 months ago. The validators added blocks to the chain, but these blocks contained no data or transactions. Basically, he went through various stress tests before the big day.

The merger will see the data stored on the ethereum core network transferred to the beacon chain, which will then become the main blockchain on the ethereum network. Ahead of the merger, the ethereum developers stress-tested the new blockchain by running data and transactions through it on various ethereum testnets.

“From talking to the Ethereum developers, they felt confident that if proof-of-work mining had been, say, banned overnight, they could have merged months ago and it would work,” Charbonneau said. The concern is that there would be some bugs on Ethereum’s “clients” – software that can read Ethereum’s data and my blocks – which could take months to fix.

Ethereum developers are paying close attention, Charbonneau said, to ensure that the different clients used by the validators can work together at the time of the merger.

Are there any risks?

Absolutely. Critics of ethereum, typically bitcoin enthusiasts, liken the union to changing the engine of an airplane in the middle of a passenger flight. At stake is not just the plane, but the 183 billion dollars of ether in circulation.

On a technical level, there could be many unexpected bugs with the new blockchain. Solana, another proof-of-stake blockchain, has experienced several complete disruptions this year. Solana and ethereum differ in that solana’s fees are miniscule, which means it’s easier for bots to overwhelm the blockchain, but technical difficulties aren’t out of the question.

Critics also wonder if the proof of the stakes will be as safe as the proof of work. Charbonneau believes it could be safer due to a feature called “slashing”: essentially, validators can have their staked ether burned and their network access revoked if they are found to have acted maliciously.

“Let’s say someone 51% attacks bitcoin today, you can’t really do anything,” Charbonneau said. “They have all the miners and they might just keep attacking you. With proof of the stakes, it’s really simple. If you hit the net, it’s demonstrable and we’ll cut you and then your money is gone.”

“Take a bullet, and then that’s it. Then you can’t do it again.”

Will it drive up the price of ether?

The ether has dropped about 60% since the beginning of the year and many are hoping that the merger will raise its price. This has been a hotly debated topic within crypto circles in recent months and no one knows for sure what the price of ether will be with merging.

There are two main reasons people predict that the price of aether will skyrocket after the merger. The first is the idea that ethereum, by splitting its carbon footprint, will make it easier for large companies to invest in ethereum and create ethereum applications.

“The reality is that if you take away the environmental care part, there are a lot of people who won’t use it [ethereum] and I don’t want to invest on the basis of ESG reasons alone, “Charbonneau said, referring to environmental, social and corporate governance standards for ethical investing.” There are many tech companies who have openly said: ‘We won’t do anything until after the merger. ‘”

The second argument people make is a little more technical. Mining ethereum is expensive; As electricity prices have risen and cryptocurrency prices have fallen, successful mining operations have also started to see red. To offset the costs, miners typically sell most of the cryptocurrency they earn from mining. This creates millions of dollars of sales pressure every day as miners unload their ether. Once ethereum is proof of participation, miners (or “validators” as they will be called) won’t have to sell all the ether they earn, since validating blocks is much cheaper than mining them via proof of work encryption.

Others argue, however, that the merger already comes with a price. It has been in the works for seven years and many large investors, according to the argument, have invested money in Ethereum with the expectation that the merger would be successful.

When will the merger take place?

The merger is expected to take place in September. The most recent tentative date of September 15th was given during a developer call on Thursday, August 11th. That date is actually ahead of schedule: September 19 had previously been referred to as the big day.

The aether increased significantly as the merger approached. The cryptocurrency is currently hovering around $ 2,000, nearly a 60% increase from July, before the Ethereum Foundation developers set a date. It’s still far from its high of $ 4,800, but encouraging news for ethereum enthusiasts in a cold cryptocurrency winter.

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