For a while, the crypto space has awaited the Ethereum Merge. This new system has been touted as the ultimate proof-of-stake blockchain that will take Ethereum to the next level and kill the competition from other DeFi ecosystems.
And on July 15, 2022, Ethereum core developer, Tim Beiko announced September 19 as the “tentative date” for the activation of the Ethereum Merge which triggered a significant rally for the second-largest cryptocurrency by market cap.
As Ethereum continues to put finishing touches on the anticipated upgrade that will put an end to proof-of-work (PoW) mining, here are the details you need to know about the Ethereum Merge and why it is important for the web3 space.
Info surrounding the Ethereum Merge
The Ethereum network, whose mainnet was launched in July 2015 is the first-ever blockchain with smart contracts support. The upgrade has been tentatively slated for the 19th of September 2022.
The ecosystem was invented by Vitalik Buterin, Gavin Wood and others in order to address the main shortcomings of Bitcoin, Litecoin, XRP and all first-gen cryptocurrencies which were only suitable for value transfer.
The Ethereum network has established itself over the years as a general-purpose decentralized computer. Its smart contracts (software programs on Solidity) are used in thousands of decentralized applications: decentralized finance (DeFi) protocols, marketplaces for non-fungible tokens (NFTs) and blockchain-based games(GameFi).
Now, it is preparing for a shift from Proof-of-mining to Proof-of-stake (PoS) consensus algorithm. Proof-of-stake is a class of blockchain consensus algorithms in which validators vote on the next block before adding it to the chain.
PoS is considered an improvement of the proof-of-work algorithm thanks to its resource efficiency, eco-friendliness and better decentralization parameters. To join staking, there is no need to purchase a piece of expensive mining equipment.
Proof-of-stake systems rely on stakers in their operations: every validator would “stake” (freeze) his/her tokens to guarantee his/her commitment to the integrity of the protocol.
To join Ethereum’s proof of stake, a crypto enthusiast would have to stake at least 32 Ethers (ETH) or almost $50,000 by press time.
Basics of the Ethereum Merge
To ensure a smooth transition to proof-of-stake consensus, Ethereum core developers activated The Merge in closed and public testnets. Finally, the largest smart contracts network will replace proof-of-work consensus with a proof-of-stake on September 19, 2022, with The Merge mainnet activation.
Once the Merge upgrade is live in mainnet and Ethereum is running on proof of stake (PoS), the Shanghai update will be its first hard fork in the new consensus.
Shanghai will change some aspects of UX/UI, upgrade EVM and reduce gas costs for end users. Also, native execution of BLS operations by Ethereum Virtual Machine will be added.
And, in subsequent months, Ethereum will likely activate sharding. This means that the blockchain will be split up into a network of shards – interconnected sub-chains.
This update is the result of three years of efforts by Ethereum developers and one of the most crucial technical changes in crypto’s entire history.
Benefits of Ethereum Merge
Generally, the Proof-of-stake system consumes less energy, reduces a network’s carbon footprint and makes it more decentralized. Ethereum’s migration and increased scalability is aimed at making the network more decentralized.
This is a huge jump that could make Ethereum the ultimate go-to chain for app developers and for other DeFi protocols.
According to Vitalik Buterin during the recent EthCC (Ethereum Community Conference) held in Paris:
“At the end of this roadmap, Ethereum will be a much more scalable system. By the end, Ethereum will be able to process 100,000 transactions per second.”
Although it is being said that the Ethereum Merge will reduce gas fees on the network, it doesn’t look this is likely to happen immediately. This is because network demand is likely to increase as efficiency increases.
Will Ethereum Merge affect its market price?
As the Merge is the most radical upgrade for Ethereum tokenomics, many $ETH holders and potential investors are wondering whether it will somehow affect the Ether price.
Generally, every major upgrade is a powerful short-term catalyst for altcoins’ prices. It can be seen how just an announcement of the upgrade date caused a significant rally of the token last week.
Going forward, ETH holders will be incentivized to lock their tokens for staking. This, in turn, will significantly reduce selling pressure which might trigger a price surge.
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