Ethereum is the open-source platform that powers the cryptocurrency ether (ETH) as well as thousands of decentralized apps.
Vitalik Buterin, co-founder of Ethereum, has noted that the blockchain may require a different type of consensus mechanism since 2014.
Ethereum intends to accomplish far more than bitcoin's blockchain because it supports smart contracts, which are automated tools that execute transactions as soon as certain criteria are met.
When computer scientist Nick Szabo initially described the concept of a smart contract in 1993, he compared it to a digital vending machine: you put a dollar in, and you get a snack back, all without requiring approval from a centralized organization.
On ethereum, the smart contracts feature has enabled the emergence of various decentralized finance protocols (peer-to-peer finance with no intermediaries or central organizations).
This has resulted in a system with daily transaction volumes that are many orders of magnitude greater than those on the bitcoin blockchain. Surprisingly, this is true even though one bitcoin is far more valuable than one ether.
Given the popularity of ethereum, these transactions were bound to increase in the future years. To keep them going, ethereum needed to develop another consensus mechanism that didn't rely on computers churning through cryptographic mathematics.
The merger is a solution designed to address this unavoidable demand. In some ways, the huge decrease in energy consumption is a byproduct—but a very pleasant one for the earth.
Customers can continue to use their AMB nodes as they do now when Ethereum transitions to Proof of Stake. For more considerations, we recommend reading the Ethereum foundations' descriptions of the broad changes made by The Merge.
The Merge will transition Ethereum's consensus from Proof of Work (PoW) to Proof of Stake (PoS) by combining the Ethereum Mainnet with the Beacon Chain Proof of Stake system.
This upgrade enhances Ethereum's sustainability by reducing energy usage, and it is part of the Ethereum foundation's continuing upgrades to improve scalability, security, and sustainability, as stated here. The Ethereum Merge to Proof of Stake is scheduled to occur at Total Terminal Difficulty (TTD) 58750000000000000000000.
2014: Vitalik Buterin states in the introduction ethereum white paper that blockchain would most likely have to migrate from proof-of-work to another method in the future.
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Ethereum is created in 2015. Around 72 million ether coins were created in the first block. Buterin received 553,000 ether.
October 2020: Ethereum launches a beacon chain deposit contract to gauge public interest in proof-of-stake. When the merge was finished, if you staked 32 ether, ethereum promises, you would become a validator of ethereum transactions.
November 2020: The beacon chain hits the 524,288 ether staked level, which Ethereum determines is required for the chain to be regarded a viable mechanism.
December 2020: Seven days after reaching the staking threshold, the beacon chain is launched. This begins the process of coding and testing the chain to guarantee that it is capable of handling the full amount of Ethereum transactions.
The merger is completed in September 2022.
The ethereum merger is unquestionably the most significant environmental enhancement in crypto history. According to the Ethereum Foundation, Ether is the second largest cryptocurrency by market capitalization, trailing only bitcoin, and consumes approximately 112 Terawatt-hours of energy per year. That is roughly the same as the total power usage of the Netherlands.
According to the foundation, the merger, which eliminates the energy-intensive proof-of-work mechanism, will reduce emissions by 99.95%.
The shift should not only make ethereum greener, but also reduce the stigma associated with cryptocurrency among many environmentally aware investors.
"Most institutional investors don't comprehend [crypto] technology, but they understand the sound bites," said Larry Newhook, CEO of Alpha Innovations, to Quartz's Tim McDonnell. "They use 'proof-of-work' as another another argument to oppose cryptocurrency." When ether switches to proof-of-stake, institutional investors will have one less excuse to say no."
Others, however, remain dubious of cryptocurrency in general. What exactly is the point? They are perplexed. "We haven't identified what we believe is a feasible use case," said Trillium Asset Management's chief investment officer, Jon Quealy. "We're not there, and we won't be for a while."