Ethereum, the blockchain that supports the world’s second-largest crypto token, ether, will soon get a major software update that will cut the amount of energy needed to make new coins and do transactions.
Here’s what you need to know about the shift, which is called the “Merge.”
What is the MERGE, then?
The Ethereum blockchain is going to join with another blockchain. This will change a lot about how it handles transactions and how it makes new ether tokens.
The new system, called “proof-of-stake,” will cut the amount of energy used by the Ethereum blockchain by 99.9%, say the people who made it. Most blockchains, including the one for Bitcoin, use a lot of energy, which has led some investors and environmentalists to criticise them.
The Ethereum Foundation, a well-known non-profit that says it backs Ethereum, says that the upgrade will pave the way for more blockchain updates that will make transactions cheaper. The Ethereum network’s biggest problems right now are high costs and slow transaction times.
And when’s it happening?
Very soon. The merge is supposed to be done between September 10 and September 20, but the exact date is not known. Estimates from different sources point to September 15 as the most likely date.
During the merge, major cryptocurrency exchanges like Coinbase (NASDAQ: COIN), Global, and Binance have said they will stop ether deposits and withdrawals. As part of the upgrade, users won’t have to do anything with their money or digital wallets, they say.
How much does this matter?
Backers of Ethereum say that the Merge is a big moment for the $1 trillion cryptocurrency market.
People who support the Merge think it will make Ethereum cheaper and easier to use than the world’s most popular cryptocurrency, bitcoin.
This could make more people use Ethereum applications. Investors think the change will have a big effect on the price of ether, which has gone up by more than 50% since the end of June while bitcoin has gone down slightly.
PROOF-OF-STAKE? SOUNDS TECHNICAL
It is. But it’s also a big deal.
Transactions on the blockchain, which is the software that most cryptocurrencies are built on, can be checked in different ways. In the “proof-of-work” system that Ethereum uses right now, crypto miners check new transactions.
Miners use powerful computers to solve hard math puzzles, update the blockchain, and add new crypto tokens to their accounts. This keeps records on the blockchain safe, but it uses a lot of energy.
In the “proof-of-stake” system, ether owners will “stake” a certain number of their coins to check for new records on the blockchain. If they find new records, they will get more coins on top of the “staked” coins.
It sounds simple enough, right?
Maybe. Developers of Ethereum say that the proof-of-stake model has protections against hackers, but others say that criminals could still attack the blockchain with the new system.
If one person or group got most of the ether that was staked to verify new transactions, they could change the blockchain and steal tokens. Crypto experts also say that the Merge could be messed up by technical problems, and scammers could take advantage of confusion to steal tokens.
It may also become easier for developers to build programmes on the Ethereum network, which could lead to a larger number of people using it. Still, it’s likely that these changes won’t be made for months, if not years.
