Ethereum finally moved to a more energy-efficient way to validate transactions on its blockchain. The entire episode is being called ‘The Merge’ and it got completed on 15 September. This switch from the proof-of-work (PoW) mechanism to the proof-of-stake (PoS) mechanism is expected to reduce the need for energy consumption quite substantially. The founders and engineers running the show have claimed that this switch will cut energy consumption by a whopping 99.95 percent. Also Read - Bitcoin miners are losing 75 percent of their earnings to electricity bills
The Merge will also have a massive impact on the miners who had set up expensive rigs to earn Eth. Instead of relying on miners, the Ethereum blockchain will now rely on investors who stake Ether. Also Read - Ethereum co-founder has an advice for crypto-investors: Here’s what
What is the Merge?
Earlier, Ethereum used to rely on miners to validate transactions on its blockchain, this was called a proof-of-work mechanism. It was an extremely energy intensive method of validating transactions. Miners had setup massive and expensive infrastructure to mine Ether. However, that is completely turned off after the Merge was executed successfully. Also Read - Over $200 billion wiped off from cryptocurrency market in a day: Report
A proof-of-stake consensus mechanism, on the other hand, can run on low-powered devices and does not require heavy computation to participate. Ethereum’s proof-of-stake mechanism secures the network by using staked ETH rather than expended energy, like in proof-of-work. The switch to proof-of-stake means the energy expended by the Ethereum network is relatively small.
Considering this was a big switch for the second largest cryptocurrency in the world (after Bitcoin), stakeholders in the crypto industry have reacted positively. The high energy expenses and its impact on the climate was one of the strongest criticisms facing the crypto industry. If The Merge turns out to be successful, it can boost the adoption of a similar process in other major cryptocurrencies in the world.
Rajagopal Menon, Vice President, WazirX said, “After the Merge, the power consumption to secure Ethereum has been cut down by around 99.95%. This in turn brings down a lot of arguments about Ethereum, DeFi and NFTs “killing the planet”. As a byproduct, it also makes Ethereum ESG compliant which can be good for more regulatory-driven institutions that may want to start exploring the Ethereum ecosystem. This will also make Ethereum more friendly to gamers and NFT artists concerned about the environmental impact of crypto.”
Menon claims that this merge does not directly address the ongoing issues of scalability or high gas fees but it paves the way to address them in future updates. He added, “One of the key benefits of the merge is the dramatically reduced ETH issuance which has been dubbed the “triple-having” of ETH.”
Amanjot Malhotra, Country Head (India), Bitay said, “The smooth transition of ETH Pow to PoS without any glitch is a testament to a solid tech team of Ethereum. The chain will now become more decentralized as compared to before because it is easier to become a validator which will make the chain more secure than before. It also becomes ESG compliant which could attract institutional capital to ETH. There was no significant price movement observed during the merge and it will be interesting to see the price movement in the coming months.”
Pratik Gauri, Co-founder & CEO, 5ire said, “It seems clear that Blockchain technology is taken over by the get-rich-quick mob. Because although this is a great sustainable development, many miners are not willing to accept it. Mainly for economic reasons, hardcore believers in the PoW consensus and miners plan to fork the Ethereum blockchain after the Merge.”