The Merge — a great combination

In the mainnet version of Ethereum, i.e. where the actual transactions take place and the cryptocurrencies have economic value, two methods of transaction approval will be combined. It’s about changing from proof-of-work (PoW) to proof-of-stake (PoS). The developers had been working on this shift for about eight years. What’s the difference between them?

Currently, transactions are mined over a decentralized network of computers competing with complex calculations. The method is very time consuming and of course the prize is ETH coins. In this system, transaction costs are extremely high. Ever since cryptocurrencies gained such popularity, coin mining has become an industry in itself. Some cryptocurrency mining companies are already listed on the stock exchange. With so many computers running, the energy consumption is almost unbelievable. Scientists have estimated that cryptocurrency mining can generate as much carbon dioxide per year as entire countries. For Ethereum, the carbon footprint is similar to that of Finland.

Proof-of-stake works by consuming less energy, therefore more environmentally friendly. Although the process itself will not affect the gas price, it will give rise to further changes. The system is not perfect because it makes the rich even richer. The more someone contributes ETH, the higher the prize is. On the other hand, the system allows for a lower barrier to entry and thus the user does not need to have a fleet of expensive computers.

Simply put, PoS can be described as the process by which investors deposit a certain number of digital coins in a shared network, allowing them to participate in the lottery. So when a transaction takes place, the one who will verify the exchange is selected from among the lottery participants. Thus, he will receive new coins.

Some time ago, Ethereum introduced the proof-of-stake chain, where you can stack ETH without restrictions. As of 2020, the Beacon Chain, which is only used for ETH stacking, has become very popular with around 330,000 validators. And over 12 million coins have already been blocked in it. It will merge with Ethereum in September. After the change, you will have to wait for the update to allow ETH withdrawals. The process of introducing a new system takes so long because a failed connection can cripple thousands of projects and cause many failures. And most historically, change has never been attempted on this scale.

For Ethereum users Merge — “connection” does not affect the use of the Block Explorer service. But for miners, it’s really the end of digging.