Ethereum (ETH), according to the CoinMarketCap, is the second largest cryptocurrency by market cap and is undergoing a change in design. Since its inception, ETH has used a standard similar to Bitcoin, Proof-of-Work, or PoW, an algorithm that automatically generates new cryptos for the currency ecosystem. This system allows users to use mining on the blockchain network to receive rewards in the currency.
The Merge is the shift from that model to Proof-of-stake, or PoS where blocks on the blockchain network are generated by the currency itself; this system is similar to the one used at Cardano (ADA). In this new model, the method for processing transactions works randomly and users who own the currency validate transactions from other traders. Within this system, the block is not mined, it is built. If all goes according to plan, The Merge will take place in September, completing the transition of the Ethereum network from PoW to PoS.
However, Merge has generated many doubts, below are some answers that will help you understand this important moment in the cryptoassets universe:
Why change now?
The ETH merger has been in development since its inception in 2015 and its date has been postponed several times, but this time it will actually happen and its impact on the market will be great since after the merger it will no longer be possible to mine ETH.
Benefits of The Merge
The promise of the new Ethereum is to reduce the electricity consumption spent on mining the coin, change the consensus algorithm, reduce network congestion and increase security, that is, in just one move the platform will eliminate some of its bottlenecks.
Ethereum post merger promises to be the most efficient asset in energy consumption, in the PoW system the energy expenditure will decrease by about 99%. Coins that use the mining model demand huge amounts of electrical energy, in addition to generating a lot of expenses with hardware devices and electronic equipment. Furthermore, the environmental costs of maintaining a mining operation are very high and disperse huge amounts of carbon dioxide into the atmosphere.
What will ETH look like?
However, from the announced changes we will immediately feel the impact of the currency issuance rate which will decrease, making ETH a deflationary asset. The fact is that ETH is the main asset of the moment and has been performing much better than Bitcoin. The merger will bring more confidence to the market and as the cryptocurrency will become deflationary, consequently the price will rise.
The issuance of new ETH will fall from now on, as mining by computers will no longer be necessary, traders will have to accumulate assets to be rewarded, that is, more ETH will be burned than issued, so the expectation is of a large high after The Merge. The merger announcement is already moving the market and valuing ETH, leaving it close to $2,000.
Increase in transaction speed?
There was a lot of talk that the merger would bring about a decrease in fees and an increase in the speed of transactions, but these are not functions of The Merge. The rate reduction is already working since the launch of
EIP-1559 last year and the speed of transactions will remain the same, thirty per second.
There are still some questions to be answered in the update, but the changes to the crypto design are profound and in the long term will generate a major rise in the price of ETH. Merge will not only affect the second largest cryptocurrency in the world, but also cryptospace as a whole.
About the author
César Felix is the Exchange’s Customer Experience Manager NovaDAX