The Merge: Tokenomics and Carbon Footprint Reduction in the Next Era of Ethereum

After years of planning and delays, Ethereum's fundamental redesign, known as the Merge, has taken place, transitioning the digital mechanism at the heart of the second-largest cryptocurrency to a far more energy-efficient system. This groundbreaking improvement eliminates the need for the miners who powered the blockchain in the past and promises substantial positive effects on the environment.

Check out the latest on the probable ApeCoin DAO vulnerability issue and Magic Eden's plans to launch a feature to preserve creator royalties before diving into this article.

The 28-year-old Vitalik Buterin wished everyone a "And we finalized!" on his Twitter. 

ConsenSys CEO Joe Lubin, who is also the creator of Ethereum, came to the celebration to offer his congratulations. 

StarkWare's president and co-founder, Eli Ben-Sasson, drew parallels between the Merge's rollout and the construction of the Webb Telescope.

Meanwhile, Ethereum Core Developer Preston van Loon acknowledged a modest improvement in the network's block production time after the merging.

The Ethereum Classic (ETC) hash rate increased by almost 200% after the merging, reaching 222.50 hashes per second. As a result, the increased hash rate is probably due to the influx of Ethereum miners into ETC. 

The question is, what exactly changes?

The use of electricity. According to the Ethereum Foundation, a group dedicated to promoting Ethereum and associated technologies, the cryptocurrency's energy usage would decrease by roughly 99.95% after the Merge. The improvement, according to the company's co-founder, will decrease global power use by 0.2%:

Despite the fact that cryptocurrency values have increased exponentially over the last several years, some argue the trend is bad for the planet. The Digiconomist estimates that one Ethereum transaction consumes as much energy as a typical American home does in a week. As a consequence of the upgrade, the amount of electricity comparable to the electrical energy consumption of a country like Portugal would be saved.  In addition, it may prove to be the last blow against the transaction system that Bitcoin relies on.

According to experts, the survival of digital assets as an asset class depends on a large inflow of institutional money. When asked about the advantages of the Merge update, Edgington mentioned the positive effect on the environment. 

Source: www.cryptonewsz.com

Tokenomics. The tokenomics of Ethereum's native currency, ether, will also be modified by the update.

Denver-based core developer Danny Ryan, who has been working on the Merge for five years, stated, "It’s not something you might just speculate on, but it’s something that can earn returns."

In the wake of the Merge, ether has acquired some of the features of more conventional financial assets, such as a certificate of deposit (CD), which provides its holders with interest income.

This update will also drastically lower the total number of ether tokens in circulation, which may make ether a deflationary currency in the next weeks and months. This, according to some investors, might help push the token's price higher.

The transition from miners to "validators" in the new verification model is responsible for the lower supply. As a consequence of this improvement, less ether will be mined than would have been the case if the payouts for validators were the same as those for proof-of-work miners. A significant portion of the ether supply is removed from circulation because validators are mandated to hold onto their tokens for an extended length of time.

In addition, the network is "burning," or permanently eliminating, some of the crypto that would normally be recycled back into circulation as part of an update that went into effect in August 2021.

Security. Enhanced network security is also cited by the developers as an essential part of the update.

For example, a 51% attack occurs when an individual or group of individuals owns 51% or more of a cryptocurrency and uses that power as a weapon to alter the blockchain. Sean Anderson of Sigma Prime claims that a proof-of-stake network is more resilient to 51% attacks because it has built-in ways to financially penalize dishonest actors by diminishing their stake.

Danny Ryan said that the protocol provides a higher level of protection since "because that economic asset is inside of the protocol, you get a much better recovery mode, so you end up with a better kind of security profile," simply allowing for a more robust recovery mechanism.

Source: blog.kraken.com

Proof-of-stake. Proof-of-work was the mechanism that powered both Bitcoin and Ethereum up until recently, and it required the use of powerful computers to solve complex tasks. The switch to proof-of-stake eliminates the need for computers to  compete with one another in a hashing process, making Ethereum far more energy efficient. Users instead make deposits of ether in a race to the top to accumulate the most of the digital currency.

Ethereum's new protocol eliminates the need for mining.

Validators, who "stake" at least 32 ETH to a locked address on the Ethereum network, take over for miners. The more ETH a validator bets, the greater its chances of getting selected, and so being granted the ability to add a "block" of transactions to Ethereum's ledger.

In 2020, Ethereum launched a proof-of-stake blockchain dubbed the Beacon Chain, although it served just as a transitional environment as validators prepared for the Merge. In order to make the switch from proof-of-work to proof-of-stake, the Beacon Chain was integrated into the main Ethereum network.

Despite all the talk about how great proof-of-stake is, not everyone is convinced. Proof-of-work, which Bitcoin relies on, is still, according to its supporters, the most secure and proven method.

Although a small number of publicly listed mining enterprises will no longer have a monopoly on the Ethereum network, opponents claim that the existing power players will just be replaced by new ones. Over 30 percent of the stake on Ethereum's proof-of-stake chain is held by Lido, a community-run validator collective. Additionally, the three major cryptocurrency exchanges, Coinbase, Kraken, and Binance, hold 30% of the network.

In other words, what should we do now?

The vitality of the Ethereum network after the update depends on the following several hours and days. Developers will be keeping an eye on indicators like validator participation rates to see how things are progressing behind the scenes. Coders  believe that, in a perfect environment, consumers wouldn't even notice the update.

In the short term, the update does not make Ethereum more speedy, cheaper, or scalable. The merge, however, makes future updates conceivable, which will include such features.

A professor of finance at the University of Sussex Business School, Carol Alexander, characterized the Merge as a watershed moment for the cryptocurrency market. She emphasized that the merging was the most significant development in the blockchain's history.

Ethereum's developers claim that the update would make the network more secure and scalable, boosting the $60 billion ecosystem it runs, which includes cryptocurrency exchanges, lending platforms, NFT marketplaces, and other applications.

The difficulty of the upgrade was increased by the fact that it was likely one of the biggest open-source software projects ever undertaken, involving the collaboration of dozens of teams and hundreds of individual researchers, developers, and volunteers.

Tim Beiko, a core engineer at the Ethereum Foundation who helped coordinate the upgrade, told CoinDesk, "I think the Merge can genuinely get those people who were interested in Ethereum, but skeptical of the environmental impacts, to come and experiment with it."

After the Merge, Ethereum's price dropped to the mark of the lowest $1.473, but then started to get higher. Many experts believe such behavior was expected in the first few days after an update. 

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