What is the Ethereum merge and why does it matter? Here’s a look at what it all means and why it’s important.
Two become one
The anticipated move is a significant one for the cryptocurrency industry.
It essentially comes down to how transactions are logged onto Ethereum's blockchain, which serves as an unchangeable log of all transactions.
Since 2016, there have been two simultaneously functioning versions of Ethereum. One has relied on a new method, while the other has used the conventional method of recording transactions. The two versions will be combined into one this month in order to use the new paradigm for record-keeping.
Blockchains and consensus mechanisms are two key cryptocurrency concepts that must be understood in order to comprehend the differences between the two versions.
September 6 marks the beginning of the first stage of Ethereum's two-stage merging, code-named Bellatrix. Paris will host the second stage from September 10 and September 2022. The merge won't be complete until both phases are finished.
After the merge, the Ethereum 2.0 network will exclusively employ Proof of Stake as a form of consensus, which is expected to use 99.5% less energy than Proof of Work did.
In the three days prior to the Bellatrix upgrade, the cost of Ethereum's native currency, ETH, has risen by 6%. ETH is presently trading at £1,448; once the merger is finished, experts anticipate more price hikes.
In anticipation of the merger, cryptocurrency exchanges like Binance temporarily stopped Ethereum transactions.
How a blockchain works
A conventional bank maintains a sizable ledger of every transaction involving its clients. The information in this ledger is crucial.
It informs the bank, for instance, which customers have how much money in each account, who has paid and received money, and so forth. A centralized ledger is a name given to this list of records. Nobody may assert that they have performed a transaction or have more money than they actually do.
In comparison, a blockchain is a "decentralized ledger." This indicates that the information is held by regular individuals who volunteer to maintain it rather than a financial entity like a bank.
It records every transaction made and cannot be edited, providing a definitive account of who holds what assets.
A blockchain's consensus mechanism makes sure that everyone participating in maintaining records of transactions is being truthful and isn't attempting to pretend that there is more money in their or other accounts than there really is.
Ethereum's initial consensus algorithm was based on Proof of Work. In 2016, the network divided into two "forks," one of which continued to use Proof of Work and the other of which switched to Proof of Stake. Ethereum will only use the Proof of Stake consensus algorithm after the merge.
Proof of Work
Members of the network fight for the opportunity to be selected to add their copy of transactions to the ledger on a blockchain that uses Proof of Work as its consensus method.
They accomplish this by choosing a long string of letters and numbers at random from among the infinite number of conceivable combinations. Your ability to make more guesses per second and the speed at which you arrive at the correct answer will increase with the strength of your computer network.
When someone provides the correct response, they are encouraged to submit their copy of the ledger for community review before it is put to the blockchain, and they are compensated with a certain amount of money.
Many believe that after Ethereum transitions to proof-of-stake (PoS), a faction of Ether (ETH) miners will be creating a proof-of-work (PoW) fork of the network so that they can still keep mining. An executive believes that there are ways for ETH holders to take advantage of this upcoming event. Different people are expecting to trade the Merge very differently to take advantage.