This week Ethereum – the world’s second largest cryptocurrency – will release the biggest update ever seen in a digital currency, transforming how it operates and reducing its energy demands by as much as 99 per cent. Why is “the Merge” happening, and what will be the effect?
What is the Merge?
Like other cryptocurrencies, such as bitcoin, Ethereum relies on proof of work (POW) for security, meaning that computers perform huge numbers of calculations to “mine” new currency and verify transactions. This uses vast amounts of electricity – by some estimates Ethereum , while bitcoin .
Unlike bitcoin, Ethereum has been preparing to ditch this system and switch to another known as proof of stake (POS), in which ownership of coins wields influence, rather than computing power. This would require only 1 per cent of current power usage, while retaining the same high levels of security, claim developers. The huge carbon emissions produced by mining has been one of the most criticised aspects of cryptocurrencies.
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In POS, miners are replaced by validators. Instead of using hardware to mine new currency to get a reward, validators lodge money with the network to gain the right to validate transactions and get rewarded.
Why is the Merge happening now?
Cryptocurrency mining has been creating vast carbon emissions for years, so you might wonder why Ethereum has waited until now to make the switch. It has actually been working towards this since its launch in 2015, but progress has been slow. The Merge was originally scheduled for 2017, but has been delayed several times. Speaking to 91av in June last year, the creator of Ethereum, Vitalik Buterin, thought it was just six to nine months away.
As the delays stacked up, the stakes got higher; more and more people were adopting Ethereum, making the potential risks bigger if things went wrong. After years of development and testing, the network says it is now ready to make the switch.
Is the Merge all about saving power?
The carbon emissions from bitcoin and Ethereum have certainly hampered the adoption of cryptocurrencies. At one point, Tesla bought $1.5 billion in bitcoin, but subsequently turned its back on it after many people pointed out that the environmental damage caused by it was at odds with Tesla’s apparent green credentials. So a solution to that problem wouldn’t only be good for the climate, it would also remove a barrier to corporate adoption.
at the Ethereum Foundation, which acts as an oversight organisation for the network and can to some extent steer its development, says that another benefit is that the networkwill be able to autonomously fine validators for behaviour that it doesn’t want to see, such as having their servers offlineor introducing discrepancies into the blockchain. “With proof of work, we only have carrots to give the miners,” he says. “Proof of stake gives us the introduction of sticks.”
Are there any downsides to the Ethereum Merge?
Although some claim the Merge will increase security, others say it will reduce it. In reality, it is virtually impossible for an attacker to muster either 51 per cent of the computer power or money staked on a network as large as Ethereum, which is what is needed to carry out theft or fraud – anything that is claimed as truth by more than half of the nodes on such a network becomes truth by definition, including claiming that you own all the funds. But with a there is certainly plenty of motivation to do so.
Beiko says that the risk of a catastrophic failure when the Merge happens is “definitely less than 1 per cent”.
Will everyone actually Merge?
By far the biggest potential problem is that the Merge may only half-happen. Or more accurately, that it will happen, but leave a large amount of users and miners behind.
Altering the way that people make money from Ethereum was always going to cause waves. Miners who have invested large sums in buying specialised hardware will see it become useless.
Miners grumbled when small changes to pave the way for the Merge happened last year, leading Buterin to tell 91av: “The transition completely removes the role of miners in the ecosystem, and obviously miners have been very unhappy about that, but we have been very open about the fact that this transition will happen.”
Those grumbles have continued, and when preparatory updates to Ethereum’s software were released, paving the way for the Merge, a significant portion refused to switch. These people kept running the old software, which now bears the name “” and still operates with miners and POW.
Ethereum Classic currently has less than 5 per cent of the computing power devoted to mining Ethereum, but after the Merge happens and current miners find their hardware useless, we may see more of them jump ship to the old-style network.
Beiko predicts that the old network won’t gain traction like Ethereum has, and will fail to attract all the previous miners. But he also accepts that it can’t be stopped. “It doesn’t make a theorem any worse off. We can’t force those other systems to change.”
Will bitcoin follow suit and switch to POS?
A change from bitcoin doesn’t seem likely in the near future. Beiko says bitcoin has a more “conservative development philosophy”, and it also lacks an oversight organisation like the Ethereum Foundation. Ethereum was designed from scratch, years after bitcoin came into existence, to eventually settle on proof of stake. Bitcoin has no such overarching plan, and any switch would have to be approved by hundreds of thousands of individual users with competing priorities.
“But imagine like 10, 20 years from now,” says Beiko. “If Ethereum has been chugging along on proof of stake, bitcoiners might feel that it’s the right thing for them to do. To be fair, I do think it’s a long shot. I think bitcoin has a much more ingrained entanglement with proof of work than Ethereum ever had.”
