The virtual currency sector has had a disastrous year. A catastrophic collapse managed to wipe out nearly $1 trillion in market value, wiping out the investments of thousands of individuals. Several businesses filed for bankruptcy.
However, the sector is now focused on a prospective redeeming factor, a long-awaited software improvement to Ethereum, which is one of the most popular crypto platforms that serves as the technological foundation for multitudes of crypto initiatives. This improvement is known as the Merge – and many have been wondering if it ever will happen.
If everything goes as planned, the Merge should occur around September 15th, upwards of eight years since it was first mentioned. The change would move Ethereum towards a more resource-efficient infrastructure, attempting to address widespread condemnation that cryptocurrency’s environmental impact surpasses its potential benefits. It would also lay the groundwork for future improvements to reduce the high fees related to transactions in Ether, the system’s trademark monetary system and the second-most valuable online asset after Bitcoin.
This change is principally laying the groundwork for a future that is far more feasible, far more eco-friendly, and far more accessible to the average person, according to Joseph Ayoub, a Citi strategist who has analyzed the Merge. It’s setting the stage for implementation.
However, the risks are significant. Even by cryptographic criteria, the procedure is unbelievably intricate.
Members have been involved in tense, technical language conversations of breakthroughs, such as the Goerli Testnet Merge and the Beacon Chain’s Bellatrix update, for months. A mishandled Merge would jeopardize the thousands of Ethereum-powered virtual currency applications, which cohesively manage upwards of $50 billion in consumer investments.
Chandler Guo, a virtual currency industry expert who leads an organization opposing the Merge, described it as flying a plane and attempting to change the motor in the air. It’s exceptionally complicated, and it’s extremely dangerous.
What Is the Merge?
The Merge is, at its core, a modification to Ethereum’s authentication method. Whenever anyone transfers money in a conventional transaction, a financial institution acts as a middleman, ensuring that one individual has enough money to pay another.
Crypto works without a middleman. A dispersed network of computers verifies transactions in this alternative financial system. Anyone can access the network by operating software that resolves complex puzzles, which is an energy-intensive procedure for verifying transactions. Inherently, the computers are competing against one another: When the problem is solved, the winners receive new tokens in the virtual currency they are validating.
This validation process is commonly referred to as cryptocurrency mining and is known technically as work proof. According to some projections, the amount of energy used in mining each year is similar to the annual greenhouse gas emissions of small countries.
The Merge could very well transition Ethereum to a different framework known as evidence of stake, which uses less electricity. Devices in a proof-of-stake framework do not expend power racing to validate transactions. Rather, virtual currency investors accumulate a certain quantity of digital tokens into a shared pool, where they are entered into a lottery. When an exchange occurs, a participant is chosen at random from the pool to authenticate the transfer of funds and earn the payoffs.
Transitioning to proof of stake may also help to solve another one of Ethereum’s major issues: the high fees necessary to use the system. Because Ethereum can only manage a limited number of transactions at a time when there is a high demand for the system, the cost of using it rises. Anybody trying to send Ether must settle a gas service charge, which has risen to as much as $200 at moments.
The Merge cannot instantaneously fix that issue, but developers claim it should lay the foundation for future enhancements designed to reduce extra costs.
The Bottom Line
The crypto space has experienced some extreme turmoil in recent times, and an update to the framework could be just what is needed to revamp the industry. Making cryptocurrency more environmentally and resource conscious, prices should manage to attract investors once again. With the Merge just around the corner, investors are closely watching the market.
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