The most talked about crypto event of 2022 occurred on September 15, the landmark moment when Ethereum transitioned from the proof of work (PoW) to the proof of stake (PoS) consensus algorithm.
This event, known as the Merger, is a large part of the Ethereum vision, which is a series of planned upgrades to be completed by 2024.
Change always brings new opportunities, questions and opportunities. The merger was no different. Here are five reasons why the merger is great for Ethereum and crypto as a whole.
1. Ethereum has become energy efficient
The Merge transferred Ethereum’s consensus protocol from a proof of work (PoW) algorithm to a proof of stake (PoS) algorithm. Consequently, Ethereum’s energy consumption is estimated to decrease by approximately 99.95%, yielding an estimated annual energy savings of 110 TWh (110 billion kilowatt hours).
The previous proof-of-work algorithm required significant computing power, as miners competed to add new blocks and create new currency, with each miner experiencing a success rate proportional to their computational effort. More computing power means more proof-of-work blockchain success.
All the powerful computers working together daily required enormous amounts of electricity. As a result, Ethereum’s energy consumption peaked during the height of the crypto bull market at around 94 TWh/year. Before the transition to proof of ownership, it was closer to 60 TWh/year, comparable to Uzbekistan, with a carbon emission equivalent to Azerbaijan (33 MT/year).
Ethereum Merge replaced the proof of work system with an alternative approach called proof of stake. In this system, owners of cryptocurrency known as “validators” verify transactions and record them on a new block. Proof of stake means that fewer people use their computing power to verify transactions. Therefore, fewer terawatt-hours (TWh) are used. Using proof-of-stake, Ethereum’s blockchain energy consumption is estimated to reduce by 99.95%.
2. A stronger backbone for Web 3.0
The Ethereum blockchain was created to provide more functionality and greater growth potential compared to the Bitcoin blockchain, which has a specified number of blocks it cannot exceed. Over the past nine years, the Ethereum blockchain has become the backbone of Web 3.0, as it has grown to handle financial payments, store non-fungible tokens, host smart contracts, and trade several new cryptocurrencies.
The merger has further streamlined the processes of data flow on the blockchain, which could give rise to a much faster blockchain. The Ethereum blockchain currently performs about 15 transactions per second, but the merger has put the blockchain on track to handle up to 100,000 transactions per second. This will be far beyond what the world’s largest payment providers, Visa and Mastercard, currently process. While Ethereum is not yet ready to handle 100,000 transactions per second, the next big upgrade, called The Surge, brings blockchain sharding with crypto enthusiasts excited about the vast possibilities of Ethereum.
3. Cost effective for validators
A significant reduction in power consumption means that the Ethereum blockchain has become more cost-effective for Ethereum holders who wish to provide network validation services. Once the merge is complete, the staking process replaces the mining process for verifying transactions.
Proof of stake (PoS) requires cryptocurrency holders to unlock a certain amount of cryptocurrency, in this case Ethereum, to participate in the transaction verification process. Validators are randomly selected to add the next block to the blockchain, as long as the validator has staked Ethereum. This reduces the need for excessive computing power as validators require Ether for staking rather than more computing power for mining. Currently, validators must stake a minimum of 32 Ether or join a staking pool.
This will provide huge savings for network validators on their power consumption. Validators can channel more resources into buying Ether for staking instead of spending tons of money to acquire more computing power. Rewards in Ether for validators are also estimated to increase by around 10%, making stakes on Ethereum more attractive.
4. Increased demand for DApps
The Ethereum blockchain has been the bedrock of decentralized apps (DApps) for a long time, and it’s set to get even better with the merger. With the rise of NFTs, Play to Earn (P2E) games and other applications, a faster and more efficient consensus algorithm allows app developers to build faster on the Ethereum network. This will bring in more users as network capabilities continue to expand.
5. Great opportunity for environmentally friendly lawyers
Environmentalists have always frowned upon owning crypto due to the argument that mining seriously harms the environment through electricity consumption. With the merger, Ethereum’s power consumption will be significantly reduced, as staking does not require expensive and power-hungry mining hardware. This will provide a springboard to win over anti-crypto enthusiasts, as Ethereum now provides a safe and clean way to invest in crypto while supporting the pro-green initiative.
As the Ethereum network becomes “greener”, more funding initiatives will be attracted, which could result in an influx of fresh capital. The idea of a lower impact of the Ethereum network on the environment will become a strong selling point to attract venture capital funding and increase pro-green valuations of crypto companies. This also bodes well for the crypto industry, as newer tokens on the Ethereum blockchain will already adopt a pro-green approach.
What next for Ethereum?
The merger is just the second step in a five-part plan to make Ethereum a truly scalable and cheap network for decentralized apps.
After The Merge comes The Surge, which should provide “massive scalability”, meaning faster operations, thanks to blockchain slicing. Next up is The Verge, which uses technology called “Verkle trees” to optimize data storage on the network.
Then there’s The Purge, which involves removing “historical data and technical debt” and reducing the hard drive space needed for validators to run. And finally, The Splurge should bring further optimizations, delivering the final upgrade that will make Ethereum super fast, efficient and scalable.
