How Ethereum Merge Could Change Cryptocurrency Forever

How Ethereum Merge Could Change Cryptocurrency Forever

Ethereum News
October 4, 2022 by Diana Ambolis
On September 15, the Ethereum merge plans to stop using its mining hardware. A cold war between genuine fans of the old ethereum and advocates of the new ethereum is likely to develop due to the transition, which may destabilize some of the largest institutions in the sector. That is if it happens at all.
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On September 15, the Ethereum merge plans to stop using its mining hardware. A cold war between genuine fans of the old ethereum and advocates of the new ethereum is likely to develop due to the transition, which may destabilize some of the largest institutions in the sector. That is if it happens at all. If this happens, the carbon emissions from the whole Ethereum ecosystem should fall precipitously over night, leaving only Bitcoin as the only significant cryptocurrency based on the destructive proof-of-work methodology.

A description of cryptocurrencies. The two most well-known cryptocurrencies, bitcoin and ethereum are based on the idea of proof of work. This includes networks that, to put it simply, outsource their security to a decentralized network of miners who compete to use vast amounts of electricity to create lottery tickets. The miner who made the winning lottery ticket is rewarded every time one is produced; the current reward is 6.25BTC or roughly £110,000 in bitcoin. They also get to confirm every transaction that has taken place since the previous winner, gather them into a neat block, and add it to the list of all earlier blocks. They mark the league with their lottery number, repeating the process.

Please don’t write to me because the previous paragraph is mostly false. Because the proof-of-work paradigm is the cornerstone of all the information you’ve heard about how cryptocurrencies influence the environment, it is accurate enough for what follows. And Ethereum wants to get rid of it.

The alternative is known as proof of stake. Though conceptually more complex, we can still express it in broad strokes as follows: instead of spending electricity to print lottery tickets, you use your ethereum to buy premium bonds, and the system chooses a winner depending on how many bonds they have bought. The selected winner then completes the customary validation requirements. You can cash out your premium bonds, but it takes time, so you’re advised not to abuse your validation privileges.

For a while, a version of ethereum was built on these principles. Since its inception, it has gone by several names, including testnet and Eth2, but as on September 15, it will only be referred to as “ethereum.” Since the old and new networks will be merged, this transition is called “the merge,” It could end up being the most significant technological achievement in the history of the bitcoin business. Consequently, there is a good likelihood that it will be very filthy.

To start, there is the date. In case you have any doubts, I’ve been burnt before. I wrote on the impending merger being “months away” in May 2021:

It has been intended to transition to proof of stake for some time, but several organizational and technological challenges have hampered the execution. According to Carl Beekhuizen, a member of the Ethereum Foundation’s research and development team, the update will be completed “in the future months.”

There was not

This time, though, the transition is a little more substantial. For starters, there is a specific timeline for the merge, and development for it has already started on the Ethereum network. The merge will happen as planned by default if no further action is taken, albeit it may still be delayed.

What’s at stake

This doesn’t ensure a smooth merger. The first barrier will be the forks, replicas of the previous version of Ethereum made to preserve the proof-of-work algorithm.

It has happened before, so this won’t be the first time. Although there have been many Bitcoin forks with names including bitcoin cash, bitcoin satoshi vision, bitcoin classic, and bitcoin gold, none has ever been able to challenge the original’s status as the market leader.

What makes you believe that the Ethereum fork may have a greater chance? Considering that ethereum miners, a sizable constituency, will probably support it. Many miners are upset that their industry was abruptly shut down after serving as the backbone of the Ethereum system for years. To survive a proof-of-work coin, they have invested in physical assets like pricy graphics cards and electrical connections. It would be challenging to employ those resources in another way.

Since cryptocurrencies are open-source, it would be simple for the miners to pick up where they left off and continue operating Nu-thereum, or whatever it calls, on September 16 as if the merge had never occurred. What happens next is the crucial question.

Everyone with ETH in their account will discover they now have two accounts, one on each blockchain. The Bored Ape NFTs’ proof-of-work version will be available as the proof-of-stake version, and so on for everyone with a smart contract operating on Ethereum.

Some of those duplicates might coexist contentedly. How much would someone who wants to possess a killer NFT pay for an “unofficial” version on the forked chain, despite others’ best efforts to talk down the forked version and never completely kill it? Even if the Apes’ creators reject the forks, the transaction might continue for a while if it is not zero.

But there can only be one for some tasks. Each USDC token is supported by $1 in tangible assets held by Circle, the stablecoin’s developer. The circle won’t have twice as much money if there are suddenly twice as many USDCs due to the fork. Therefore it will have to decide which network to support and which to reject.

The major stablecoins, including USDC and Tether, don’t appear inclined to support the rebel chain. And as forked projects fail one after another, the resultant slow-motion collapse of the entire rebel ecology will occur. However, it will continue to serve as a foundation for new development that will ultimately be more comparable to the Ethereum that developers now know and love than the more ecologically friendly version it is set to become.

Next steps

The new miners aren’t just acting for their benefit. The decentralization that supports the crypto economy is another fundamental issue that is in play. A conventional centralized database is faster, cheaper, and safer to run. Still, it requires you to trust whoever is operating it, which is why decentralization is fundamentally the only reason for cryptocurrencies.

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A decentralized cryptocurrency is one that neither big business nor big government can influence, which makes them ideal for, in general, crime and evading the law, as well as loftier ideals like “permissionless innovation” and “uncensorable expression.”

Some supporters of the proof-of-work (PoW) idea are concerned that proof of stake (PoS) will ultimately lead to Dino: decentralization in name only. These supporters include the bitcoin “maximalists,” who look down even on upstarts like ethereum. The system’s design gives network authority to people with the most money invested there. Worse yet, it provides more power to individuals who manage other people’s funds, including centralized exchanges like Coinbase or Binance and centralized notbanks like Celsius or Voyager, if they had endured that long. These exchanges can provide “staking” services, whereby they handle the challenging technical aspects of implementing proof of stake (i.e., purchasing the premium bonds, in my great analogy) while giving their consumers the benefits.

It is more than just a theoretical worry that the dinosaurs are on the rise. The post-Tornado Cash world is still coping with the aftermath of the US Office of Foreign Assets Control accusing North Korea’s favorite decentralized app of money laundering, sanctioning it, and approving a block containing a transaction to or from an authorized address under US law (OFAC). It’s unclear whether a “validator,” the PoS replacement for miners, can.  

By demanding a “serious commitment to punish censors,” Ethereum’s founders are attempting to press the issue. The goal is that the credible pledge will mean that it does not need to be clear what that means and that organizations that must adhere to OFAC will not stake ethereum in the first place. Uncertainty surrounds what an Ethereum devoid of validators that tries to adhere to US sanctions will look like. But that is the future we are headed for.