The “Merge” of Ethereum is one of the most significant technological upgrades to the blockchain since its inception in 2015. It is also expected to be one of the few catalysts that would provide decentralized finance the much-needed impetus. Ethereum co-founder Vitalik Buterin has revealed that the Merge upgrade is set to take place in August. Under the upcoming upgrade, the current Ethereum Mainnet will "merge" with the beacon chain proof-of-stake system. This will mark the end of proof-of-work for Ethereum and full transition to proof-of-stake. Notably, Ethereum Mainnet continues to be secured by proof-of-work, even while the Beacon Chain runs in parallel using proof-of-stake. The Merge occurs when these two systems finally come together.
What is the “Merge”?
The “Merge” is intended to shift the Ethereum blockchain from the current proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model, which is intended to be faster, more secure and energy efficient. The proof-of-work (PoW) requires miners to compete for rewards based on the amount of computational power they can acquire, while the proof-of-stake mechanism randomly selects validators relative to the total amount and time their ether (ETH) currency has been staked. Unlike proof-of-work, PoS validators do not need to mine blocks to maintain the network. Instead, they need to create new blocks when chosen and validate others when not. Once a participant has validated the latest block of transactions, other contributors can attest (confirm) that the block is valid.
How would this affect Ethereum?
When compared with Ethereum's current resource-intensive PoW governance system, PoS is expected to reduce the energy consumption of the network, which would make it more economic, energy efficient and sustainable for crypto miners. It will also pave way for shard chains in 2023, which are expected to nullify data congestion and high gas (transaction) fees and aid the next generation of layer 2 scaling systems. Shard chains provide extra and cheaper storage layers for applications and roll-ups to store data.
Outlook:
The upcoming “Merge” is expected to have major implications for Ethereum price, depending on how it will be received by the investors and crypto community. The success of the “Merge” will renew faith in the future of Decentralized finance, while further delay or a botched execution will trigger a price collapse. If things go according to the plan, the price of Ethereum will likely increase in the medium to long term.
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