Ethereum, the blockchain that underpins the world’s second largest digital currency, will soon undergo a major software upgrade that promises to reduce the amount of energy needed to create new coins and execute transactions.
Here’s what you need to know about “merging,” as transformation is known.
So what is merging?
The Ethereum blockchain is set to be combined with a separate blockchain, fundamentally changing the way it processes transactions and how new ether tokens are generated.
The developers say that the new system, known as “Proof of Stake,” will reduce the power consumption of the Ethereum blockchain by 99.9%. Most blockchains, including bitcoin, are eating up large amounts of energy, prompting criticism from some investors and environmentalists.
The Ethereum Foundation, a prominent nonprofit that says it supports Ethereum, says the upgrade will pave the way for more blockchain upgrades that will facilitate cheaper transactions. Currently, high costs and slow transaction times are among the main issues that users face with the Ethereum network.
And when does that happen?
very soon. Completion of the merger is scheduled for September 10-20, although the exact timing is uncertain. Independent estimates put September 15 as the likely date.
Major cryptocurrency exchanges, including Coinbase Global and Binance, have said they will temporarily halt ether deposits and withdrawals during the merger. Users won’t need to do anything with their digital money or wallets as part of the upgrade, they say.
How big is this deal?
Ethereum backers say the merger is a massive moment for the $1 trillion crypto sector.
Proponents believe that the merger will make Ethereum more favorable over arch-rival Bitcoin – the world’s best cryptocurrency – in terms of price and ease of use.
This could lead to widespread use of Ethereum applications. Investors are betting that the change will be significant for the price of ether, which has risen more than 50% since the end of June, compared to a slight loss for bitcoin.
Proof of stake? artistic sounds
that it. But it is also important.
There are various ways to verify transactions on the blockchain – the software that supports most cryptocurrencies. In the “Proof of Work” system currently used by Ethereum, new transactions are vetted by crypto miners.
Miners use powerful computers to solve complex math puzzles and update the blockchain, earning new cryptographic tokens. While this makes records on the blockchain secure, it is also very energy intensive.
In the “Proof of Stake” system, Ether owners lock up specific amounts of their coins to verify new records on the blockchain, earning new coins in addition to their “stacked” cryptocurrency.
Seems like no mind, right?
Can. While Ethereum developers say the proof-of-stake model has safeguards to fend off hackers, others say criminals can attack the blockchain under the new system.
If a single entity accumulates the majority of the ether stack to validate new transactions, it can alter the blockchain and steal tokens. Crypto experts also say that there is a risk of technical glitches in the integration process, and that scammers could exploit the confusion to steal codes.
It may also become easier for developers to build software on the Ethereum network, which could boost adoption. However, those updates are likely months, if not years away.