Ethereum Merge is now done, after six years in the making. The second-most valuable cryptocurrency will switch from a proof-of-work (PoW) model to a proof-of-stake (PoS) one, which is projected to be significantly more energy and cost-efficient.
Ethereum's price currently stands at $1,604 with a market cap of nearly $201 billion, having dropped from a high of $1,648.19 on September 15 as per Coinmarketcap. Currently, Bitcoin has a market cap of around $385 billion, and the token is trading for $20,142.49.
Vitalik Buterin, co-founder and creator of Ethereum, has been promoting the Merge celebration with a 100,000 ETH giveaway on Twitter with a new post almost every minute since the morning. Wonder, if his company profile has any bugs that need to be fixed!
Touted to be the biggest crypto event since the creation of Bitcoin and Ethereum, we take a look at what this really means, and what are the pros and cons the crypto investors might want to think over.
Proof of Work Vs. Proof of Stake
This is the single-most important feature of the merge, which changes it all. Unlike the PoW way of solving mathematical puzzles to mine tokens, PoS involves users or in this case validators deposit their holdings (stake) and lock them on the blockchain to create a block validate new transactions and blocks.
So, it’s a consensus mechanism where validators take over the job of block creation from miners.
Why the merge?
According to experts, PoS can save as much as 99 percent of the energy involved in mining as compared to Bitcoin. Buterin had said that with PoS he aims to slash 99.95 per cent energy required. Reduction in energy usage will also enable institutional investors to trade more.
The gas fees or transaction fees too are expected to come down significantly. The blockchain will also be able to process much more transactions per second as compared to the previous version. As per media reports, Ethereum 2.0 can handle 100,000 transactions per second against around 30 transactions per second in the previous version.
Points worth pondering on
The biggest concern would be the control of the Ethereum blockchain network will in the end lie in the hands of a few validators who have larger holdings. This questions the truly decentralised nature of cryptocurrency transactions.
PoS has been claimed to be a safer and be more secure than PoW, but that is yet to proven. Experts are saying they aren’t sure about the security improvement of the blockchain as of now.
What it means for Bitcoin?
With Ether going PoS, limelight will likely fall on Bitcoins, the largest crypto token by market cap, and how it is environmentally damaging and consumes a lot of energy. Bitcoin will need approval of at least 51 per cent of its holders to move to PoS, which os highly improbable given the centralized nature of PoS.
But PoW cannot be used for use cases like metaverse and NFTs, making Ethereum the clear token of the future for now.
For the time being Bitcoin’s price might increase in comparison to Ethereum’s price, but long-term plans are yet to be seen.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
