The Ethereum Merge is part of a major upgrade to Ethereum. It is called Serenity, and its mission is to improve the efficiency, security, and integrity of the platform.
Ethereum is the world’s second-largest cryptocurrency and blockchain platform, with a market cap of over $25 billion. The platform is used by thousands of developers and companies to build decentralized applications, often using Ethereum protocol and Ether tokens (ETH) as currency. Ethereum has been through many updates since its inception, but nothing this big has ever happened before. The Ethereum Merge signals the start of fundamental changes to how the network works and is a major leap forward for the cryptocurrency industry, particularly for cryptocurrencies that leverage the Ethereum network.
Before we begin, let’s briefly delve into the terminology for some of the elements that have played an intrinsic role in the Ethereum Merge.
The Proof-of-Work Chain
Proof-of-work (PoW) is a system where the validity of a transaction is determined by the work done by a computer to solve a mathematical puzzle. It’s used in Bitcoin, Ethereum, and other cryptocurrencies to ensure that no one can spend their cryptocurrency more than once.
The Proof of Work system essentially operates on competition between miners to solve cryptographic algorithms to validate transactions, earning blockchain rewards (ETH) in return. While it has always provided a high level of security, its slow transaction speeds, expensive fees, and high energy consumption have drawn criticism.
Proof-of-stake (PoS) also relies on computers doing work but has different properties than PoW. In proof-of-stake, there are no blocks and each transaction is authenticated by randomly chosen validators who are selected based on a set of rules and the ‘stake’ they have in the blockchain. Staking (or ‘putting coins in the pot) gives ETH owners the ability to add a block of transactions to the ledger, and are in turn then compensated with crypto for their efforts.
There are a few notable differences between PoW and PoS. These are namely speed, efficiency, energy consumption, and transaction fees.
The Beacon Chain
The Beacon Chain is a proof-of-stake (PoS) blockchain that constantly scans and validates a sea of data across all other Casper blockchains (a Casper blockchain is a hybrid PoW/PoS consensus algorithm that is permissionless, decentralized, and public), meaning that these chains can operate independently from each other but still be tracked by the same parent chain. Why is this important? Well, the Serenity protocol was designed to transition Ethereum from its current consensus algorithm (PoW)—to PoS whilst retaining the majority of its core functionality.
The Ethereum Merge: A Step-by-Step Explanation
Step 1: The creation and launch of the ‘Beacon Chain’ took place back in December 2020. This update first introduced PoS on Ethereum and was called the ‘consensus layer.’
Step 2: The PoW consensus mechanism was replaced with PoS. The existing chain then acted as the ‘execution layer,’ as the current PoW system will be replaced by the Beacon Chain.
Step 3: While the consensus layer took care of network security, the execution layer maintained the execution of smart contracts and the creation of transactions.
Step 4: ‘The Merge’ – the official update that combined the consensus and execution layers together, permitting the transition to Ethereum 2.0 – known as ‘Serenity’.
To put the Merge into perspective, Justin Drake, a researcher at the non-profit Ethereum Foundation described the process as “switching out an engine from a running car” in an interview with Sam Kessler of Coindesk.
So, what will change with the Ethereum Merge?
The highly anticipated Ethereum Merge involved a complex network transition from proof-of-work to proof-of-stake, meaning that the blockchain is no longer reliant on high levels of energy consumption to support transactions and the creation of crypto units.
Before the Merge, Ethereum’s electricity output was equivalent to that of the size of Finland (source: Digiconomist), leading to environmental concerns from climate change advocates regarding Ethereum’s reliance on fossil fuels. Within 3 hours of its launch on Thursday 15th September, Ethereums energy output had reduced by 99.9%. Post-merge, Ethereum will generate dramatically less carbon, making an industry that has often been criticized for its energy-guzzling tactics, into something much more appealing to investors. Crypto advocates now hope that Ethereum will encounter greater adoption and fewer regulatory challenges as global scrutiny shifts away from its environmental impact.
Tim Beiko, a key player in the coordination of the Merge and a developer at the Ethereum Foundation gave his thoughts on how it could effect the popularity of the platform when speaking to CoinDesk: “I think the Merge can genuinely get those people who were interested in Ethereum, but skeptical of the environmental impacts, to come and experiment with it.”
Increased Security & Speed
The upgrade significantly improves the security of Ethereum, as PoS validators must pledge large amounts of ETH in order to undertake a transaction. If the system detects fraudulent activity, the protocol can automatically destroy their ETH. PoS is also faster as it does not require the need for mining, resulting in faster transactions.
Reduction of Costs & Decentralisation
As mentioned, the PoW model was energy-intensive and expensive, requiring investment into hardware and data centers to run the mining process. It is expected that the reduction in energy consumption due to the PoS switch will bring down overall costs, particularly as the number of users rises. In turn, this should encourage more people to become validators, thus increasing the decentralization of the network.
The Future of Ethereum Blockchain
Ethereum 2.0 enables interoperability between different blockchain projects, which will undoubtedly improve efficiencies and allow different projects to exchange data in a more seamless fashion, enhancing collaboration, innovation, and communication.
Carl Jat, COO at Ecoinomy comments: “The Ethereum Merge signifies a huge opportunity for the industry. With enhanced security, increased efficiencies, and a smaller carbon footprint, it is highly likely that the global markets will adopt widespread use of blockchain technology in years to come.
“These changes will make it vastly easier for projects to use the Ethereum network as a platform for their own operations, which is particularly promising for the healthcare sector. Ecoinomy is in the process of utilising blockchain technology to build a healthier, more accessible future for the widespread use of organic medicines, designed to benefit users, producers, and distributors. The Ethereum Merge enhances collaboration at every touchpoint of the organic medicine lifecycle and will open up a huge window of opportunity for the market.”
Jonathan Milbank, Marketing Director at Ecoinomy comments: “With the upgrades attributed to the Ethereum Merge, we can now envision the true potential of the scalability of the platform. These upgrades are a huge step forward for projects that operate within a blockchain infrastructure and will make Ethereum faster, more scalable, more secure, and more appealing to investors from outside of the crypto sector. ”
This article has covered many of the key points about what the Merge means for Ethereum and the projects that are built within it. These upgrades will pave the way to revolutionising how not just Ecoinomy and the organic medicine industry, but the rest of the world interacts with Blockchain technology.
For more information about the Ecoinomy project get in touch with an Ecoinomy representative.
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