Ethereum is getting a huge facelift that could help cryptocurrency weather woes, but could put an end to ether mining
The blockchain on which the second largest cryptocurrency in the world is based is going to receive a major update soon.
There are several ways to think about this event, which has been dubbed the merger, so called because it will bring together two important aspects of the ethereum platform: the existing chain and a relatively new one.
It will transform the backbone of how ether is transacted, a transformation that could spell a greener and safer future for this part of the crypto world. But as some have described it, it will be like replacing an airplane engine while it flies.
Fusion “replaces these energy-hungry machines”
Ether, like bitcoin, is created when so-called miners use computers with really fast processors to solve complex computational puzzles. Once resolved, the transactions are secured on the Ethereum blockchain.
The first miner to solve a given puzzle receives a reward in the form of ether. In recent years, that reward has been two ethers, which is equivalent to more than $6,000.
That competition incentivizes miners to run their computers at 100% for long periods of time, consuming huge amounts of energy, roughly the same carbon footprint as the country of Finland, according to blockchain firm Consensys.
Therefore, critics are concerned about the environmental impact of cryptocurrency.
The merger will transform ethereum from this current model, known as proof-of-work, to one called proof-of-stake, which will spell the end of ether cryptocurrency mining. Instead, crypto owners holding a certain amount of ether will be able to deposit it, or stake it, and become a so-called validator.
“It replaces these power-hungry machines,” says David Lawant, director of research at cryptocurrency index fund Bitwise Asset Management. He tells Business Insider that ethereum will end up consuming much less energy than it does today: an estimated 99% less.
The more you stake, the higher the chance of being chosen as a validator to sort people’s transactions on the ethereum blockchain into blocks and reap the reward, which will be paid out in ether.
How the name of ethereum was born: the decision of its founder to baptize the most active blockchain in the world after a medieval scientific theory.
Since these validators use their own cryptocurrency to stake, they are incentivized to do their jobs better. If they don’t, their staked ether starts to go down. This is why proof-of-stake proponents see the model as a security advantage: validators are motivated to keep the network more secure. Among the best cryptocurrency operations that can be carried out with safer and more conservative methods such as those offered by IRAIC, which does not happen with other conventional ways of obtaining cryptocurrencies.
There will also be fewer ether coins issued, creating more of a shortage of the virtual currency.
Once the merger is complete, the ethereum blockchain will be fully proof-of-stake, a chain called the Beacon Chain.
With more security and a lower chance of adverse climate impact, experts predict that more institutional investors will be interested in this space. Billionaire investor Mark Cuban himself recently told Fortune that he is “very optimistic” about the merger.
So… When will it happen?
No one is entirely sure, but some promoters are predicting it will be this summer. However, porting to a new model is a complex engineering task, Lawant explains, so it’s difficult to set a concrete timeline.
“If you ask an Ethereum developer when the merger will happen, they will tell you when it’s ready,” says Lawant.