Ethereum Merger

In News

• Ethereum, the world’s second most valuable cryptocurrency, has completed a significant software overhaul recently.

About

• Revamping of Ethereum:
  • It is known as ‘The Merge’. 
  • It will cast aside the need for crypto miners and gigantic mining farms, who had previously driven the blockchain under a mechanism called ‘proof-of-work’ (PoW). 
  • Instead, it has now shifted to a ‘proof-of-stake’ (PoS) mechanism that assigns ‘validators’ randomly to approve transactions and earn a small reward.
• How it worked till now: 
  • Ethereum is a decentralised cryptocurrency, meaning that it does not have institutions like banks approving the transactions that happen on its network. 
  • The approvals were earlier happening under the PoW consensus mechanism which was essentially done by miners. 
  • Miners would compete to solve complex mathematical puzzles using a massive infrastructure of cutting edge computer hardware, and the first one to solve the puzzle would be chosen as the validator. 
  • This method was almost entirely dependent on crypto farms, which are massive warehouses lined with rows of computers which would solve the puzzles.
  • Problem: These mining farms were energy guzzlers, leading to one of the biggest criticisms of the crypto industry that they sometimes consumed more electricity than entire countries, and were therefore a big concern in terms of environmental sustainability.
• New Change: 
  • ‘The Merge’ and the shift to the PoS consensus mechanism. 
  • Ethereum is still a decentralised platform, but under the new concept, it would not need miners and mining farms to authenticate transactions anymore. 
  • Instead, a validator will be randomly assigned using an algorithm from a pool of people who ‘stake’ their coins, which essentially means pledging at least 32 Ethereum tokens on the network. 
  • This would entirely eliminate the need for miners on the Ethereum network.
  • Cryptocurrencies that use proof of stake include Cardano, Binance Coin, and Solana.

Significance of Merge

• Enhanced Security: It will make transactions on the Ethereum network extremely secure.
• Supporting Network: Given that some of the most popular applications of cryptocurrencies such as non-fungible tokens (NFTs) and decentralised finance (DeFi) are based on the Ethereum network, the overhaul could have far-reaching consequences in the future.
• Reduced Energy Consumption: The move to PoS will reduce ethereum’s energy consumption by nearly 99.95 percent.
• Environmentally Beneficial: It is also being seen as an environmentally conscious move as it claims to cut down on its carbon footprint, nearly entirely.
• Lower Cost: It will help in reducing the cost per transaction, charged by miners and validators. 
• More Returns: It will also allow ordinary people to earn returns on ethereum by participating in this new process of validation (staking). 

Source: IE