An estimation on the blog of the Ethereum Foundation claims that the merger will reduce total energy consumption by at least 99.95%, but not everyone is convinced of the advantages. We are witnessing Ethereum and its merge transition to the beacon chain.
The second-largest cryptocurrency is scheduled to switch to a more environmentally friendly model, which may attract new investors who believe that bitcoin’s model consumes too much electricity, according to the most recent countdown. Ethereum users anticipate the significant network upgrade to start around 10pm PST.
As its execution layer integrates with the novel Proof-of-Stake consensus layer known as the Beacon Chain, the Ethereum blockchain will pivot away from its energy-intensive Proof-of-Work consensus mechanism.
The alleged “Merge” is comparable to retrofitting a rocket ship after it takes off: “It is an epic engineering feat.”
As initially disclosed by Cointelegraph, the Merge will witness ETH, the native currency of the Ethereum ecosystem, remain once the mainnet joins the Beacon Chain.
It is important to note that some PoW miners who have historically mined blocks and kept the execution layer up and running have said they will continue to do so.
After the Merge, the PoS-powered Ethereum blockchain will proceed to use ETH, whereas a potential PoW Ethereum network, called ETHPOW, may split off and issue an ETHW token.
Ethereum has traded lower over the past 24 hours, largely due to yesterday’s chaos caused by the CPI, but it has stabilized today around $1600.
As the WSJ points out, Bitcoin concocted the proof-of-work model, in which a decentralized, worldwide network of computers processes transactions and adds them to the blockchain by producing random numbers in the hopes of discovering the right combination to unlock formulas.
Miners are rewarded with freshly minted bitcoins.
Validators stake their cryptocurrency holdings in the proof-of-stake model that Ethereum is transitioning to in order to validate transactions.
If the validators act deceitfully, the “staked” ether tokens serve as collateral and may be destroyed or taken away.
As compensation, the validators receive interest payments on their staked holdings.
The Ethereum Foundation estimates that staking on the Ethereum blockchain before the merge would earn a 4.1% yearly percentage rate.
Put bluntly, ethereum’s major upgrade means that verifying transactions will use a great deal less energy. Cutting energy usage by more than 99% will also significantly lower the entry barrier for institutional investors, who have been wary of appearing to be a part of the climate crisis.
If everything goes as planned, it will be bland, as One River’s Sebastian Dae observed earlier in the week, lacking the thrill of witnessing a rocket launch. Unfortunately, every layer 1 that succeeds hopes to be just that—a dull, safe platform that eventually becomes undetectable to users who expect more from their tools and is thus taken for granted. The Merge brings that possibility one step closer.
Approximately 150 developers will be placed on heightened alert to handle any potential hiccups during the actual process, which is anticipated to last 12 minutes.
The merge was initially referred to as “Ethereum 2.0,” according to Decrypt, but then that name was dropped in favour of a new of rhyming names for each phase: merge, surge, verge, purge, and splurge.
To follow the shift from the existing “proof-of-work” network to its new “proof-of-stake” paradigm, the Ethereum Foundation is hosting its very own live broadcast.
Watch the livestream below:
The most well-known consensus mechanisms are probably proof-of-work and proof-of-stake, but new models are constantly being developed.
PoW blockchains have long dominated the cryptocurrency landscape, with both Bitcoin and Ethereum using this model. This means miners are responsible for securing the network and validating transactions — and they get rewarded with new coins as a result.
However, a common criticism surrounding Proof-of-Work relates to how much energy it uses, and the impact such blockchains have on the environment. Miners need to use vast amounts of computing power to solve arbitrary mathematical equations. More advanced hardware has been required as the industry matured, with electricity usage surging too.
This has led Proof-of-Stake to be regarded as a more eco-friendly approach. Miners are replaced by validators — nodes that have a financial stake in the smooth running of the network. While proponents claim this can use 99% less energy than PoW, some fear PoS can lead to greater levels of centralization and censorship. Ethereum is currently in the process of moving to this consensus mechanism during The Merge — and it’ll be interesting to see how this high-stakes experiment pans out.
A new approach is known as Published Proof-of-Contribution, otherwise known as PPoC for short. Here, every single participant has a role to play in ensuring the ecosystem is decentralized, democratic and well-governed.
An estimation on the blog of the Ethereum Foundation claims that the merger will reduce total energy consumption by at least 99.95%, but not everyone is convinced of the advantages.
“There are some misconceptions among the wider public around what kind of benefits the Merge is going to bring,” Henry Elder, Head of DeFi at digital asset management firm Wave Financial, told Decrypt.
“It’s not going to make Ethereum faster, more scalable and cheaper. It’s just Ethereum that goes from proof-of-work to proof-of-stake.”
Michael Saylor from MicroStrategy also offered some high-level insights on Bitcoin Mining & the Environment:
1. Bitcoin Energy Utilization: Bitcoin runs on stranded, excess energy, generated at the edge of the grid, in places where there is no other demand, at times when no one else needs the electricity. Retail & commercial consumers of electricity in major population areas pay 5-10x more per kwH (10-20 cents per kwH) than bitcoin miners, who should be thought of as wholesale consumers of energy (normally budgeting 2-3 cents per kwH). The world produces more energy than it needs, and approximately a third of this energy is wasted. The last 15 basis points of energy power the entire Bitcoin Network – this is the least valued, cheapest margin of energy left after 99.85% of the energy in the world is allocated to other uses.
2. Bitcoin vs. Other Industries: Bitcoin mining is the most efficient, cleanest industrial use of electricity, and is improving its energy efficiency at the fastest rate across any major industry. Our metrics show ~59.5% of energy for bitcoin mining comes from sustainable sources and energy efficiency improved 46% YoY. No other industry comes close (consider planes, trains, automobiles, healthcare, banking, construction, precious metals, etc.). The bitcoin network keeps getting more energy efficient because of the relentless improvement in the semiconductors (SHA-256 ASICs) that power the bitcoin mining centers, combined with the halving of bitcoin mining rewards every four years that is built into the protocol. This results in a consistent 18-36% improvement year after year in energy efficiency. More details on this are included in the BMC Presentation.
3. Bitcoin Value Creation & Energy Intensity: Approximately $4-5 billion in electricity is used to power & secure a network that is worth $420 billion as of today, and settles $12 billion per day ($4 trillion per year). The value of the output is 100x the cost of the energy input. This makes Bitcoin far less energy intensive than Google, Netflix, or Facebook, and 1-2 orders of magnitude less energy intensive than traditional 20th century industries like airlines, logistics, retail, hospitality, & agriculture.
4. Bitcoin vs. Other Cryptos: The only proven technique for creating a digital commodity is Proof of Work (bitcoin mining) deployed in a fair, equitable fashion (i.e. no pre-mine, no ICO, no controlling foundation, no primary software development team, no series of forced hard fork upgrades that materially change the monetary protocol). If we remove the dedicated hardware (SHA-256 ASICs) and the dedicated energy that powers those mining rigs, we are left with a network secured by proprietary software running on generic computers. That places all security & control of the network in the hands of a small group of software developers, who must create virtual machines doing virtual work with virtual energy in a virtual world to create virtual security. All attempts to date have resulted in a digital asset that meets the definition of an investment contract (i.e. digital security, not digital commodity). They all pass the Howie test and therefore look more like equities than commodities.
Regulators & legal experts have noted on many occasions that Proof of Stake networks are likely securities, not commodities, and we can expect them to be treated as such over time. PoS Crypto Securities may be appropriate for certain applications, but they are not suitable to serve as global, open, fair money or a global open settlement network. Therefore, it makes no sense to compare Proof of Stake networks to Bitcoin. The creation of a digital commodity without an issuer that serves as “digital gold” is an innovation (we have accomplished this only once in the history of the world with Bitcoin). The creation of a digital security or digital coupon on a shared database is utterly ordinary (it has been done 20,000 times in the crypto world, and 100,000+ times in the traditional world).
5. Bitcoin & Carbon Emissions: 99.92% of carbon emissions in the world are due to industrial uses of energy other than bitcoin mining. Bitcoin mining is neither the problem nor the solution to the challenge of reducing carbon emissions. It is in fact a rounding error and would hardly be noticed if it were not for the competitive guerrilla marketing activities of other crypto promoters & lobbyists that seek to focus negative attention on Proof of Work mining in order to distract regulators, politicians, & the general public from the inconvenient truth that Proof of Stake crypto assets are generally unregistered securities trading on unregulated exchanges to the detriment of the retail investing public.
6. Bitcoin & Environmental Benefits: There is an increasing awareness that Bitcoin is quite beneficial to the environment because it can be deployed to monetize stranded natural gas or methane gas energy sources. Methane gas emissions’ curtailment is particularly compelling and Dan Batten (https://batcoinz.com/) has written some impressive papers on this subject. It has also become clear that energy grids that rely primarily on sustainable power sources like wind, hydro, & solar can be unreliable at times due to lack of water, sunlight, or wind. In this case, they need to be paired with a large electricity consumer like a bitcoin miner in order to develop grid resilience & finance the buildout of additional capacity necessary to responsibly power major industrial/population centers. The recent example of major Bitcoin energy curtailment on the ERCOT grid in Texas is an example of the benefits of bitcoin mining to sustainable power providers. No other industrial energy consumer is so well suited to monetize excess power as well as curtail flexibly during periods of energy shortfall & production volatility.
We conclude by pointing out that the typical Ethereum user and ETH holder should not be concerned about losing their money or changing their favored wallets prior to the Merge. All of the funds in wallets are still available and secure because the entire history of the Ethereum blockchain is carried over during the transition.
Most importantly, watch out for cons. The three most prominent ways that malicious actors are attempting to take advantage of the Merge event have been listed by Cointelegraph. The hype revolves around fake airdrops, upgrade scams, and fraudulent staking pools. To get new tokens, you do not have to send ETH or update your wallet.