The Ethereum Merge For Dummies
Ethereum is one of the world’s largest blockchain ecosystems, and on September 15th, its core team took a huge step.
Ethereum is estimated to house over $70 billion in value. So whenever their core team announces a major update, the world wants to know about it instantly.
On September 15th, something with significance happened with the software that runs smart contracts, NFTs, Ether, Defi, and a whole range of crypto stuff.
They announced that a way more energy-effective algorithm known as proof of stake will replace the more energy-intensive proof of work algorithm used since their inception in 2015. Proof of what? Ok, let’s go to the basics.
Consensus algorithms for starters
A blockchain is a technology that stores data (the data can be anything of value, like a selfie of your dog) on a distributed and decentralized network of computers. However, there has to be a way to control data ownership to maintain order in the network.
If A owns B, and A has transferred the ownership of B to C. Then A cannot keep owning C. Because B is now owned by C.
Bitcoin, the world’s first blockchain launched with the proof of work (PoW) algorithm to validate transactions. PoW became the standard for other soon-to-come blockchains, including Ethereum.
Proof of work (PoW) is a form of cryptographic proof in which one party (the prover) proves to others (the verifiers) that a certain amount of a specific computational effort has been expended — Wikipedia
Let’s look into how the PoW approaches data ownership in a blockchain.
Buying coffee on a PoW blockchain
Let’s say I own 1 ETH (Ether is a cryptocurrency running on the Ethereum blockchain) and decide to buy coffee with it. I open my digital wallet and scan the QR code to pay for the coffee at Starbucks.
At that precise moment, my purchase will be broadcasted to all computers (miners) responsible for storing and registering data on the blockchain.
Each one of them will try to register the transaction on the blockchain by solving a highly complicated mathematical problem assigned by the PoW algorithm.
The PoW assigns a very complicated problem to decrease the odds of many computers coming up with an answer at the same time
The first to solve the problem gets to register the transaction and is rewarded a certain amount of Ether. Once the transaction is recorded, all computers must update their copy of the blockchain to reflect the change.
The next time I try to spend the same ETH to buy ice cream, the computers in the network will know that I have already transferred the ownership of that one Ether to Starbucks when I paid for the coffee.
It all sounds nice until we start measuring the impact of the computational power being used for mining crypto under PoW.
The amount of power required to keep a network the size of Bitcoin and Ethereum is humongous.
As of May 2022, the combined electricity consumption of blockchains was estimated to be around 150 terawatt-hours annually. More than a country with 45 million inhabitants like Argentina, consumes per year.
Producing that energy emits some 65 megatons of carbon dioxide into the atmosphere annually — comparable to the emissions of Greece — making crypto a significant contributor to global air pollution and climate change — Columbia Climate School
Environmental concerns were piling over the exaggerated amount of electricity being consumed to power an industry benefiting so few and yet impacting the future of so many.
The Merge marked the end of proof-of-work for Ethereum and start the era of a more sustainable, eco-friendly Ethereum. Ethereum’s energy consumption dropped by an estimated 99.95%, making Ethereum a green blockchain — Ethereum
Buying Coffee on a PoS blockchain
Let’s say I own 1 ETH and decide to buy coffee with it. I open my digital wallet and scan the QR code to pay for the coffee at Starbucks.
In a PoS blockchain, anyone holding cryptocurrency can be a validator, the only requirement is to stake crypto as collateral for the validation.
At that precise moment, my purchase will be broadcasted to a randomly chosen set of computers (validators) to create a block and then they submit their proposed block for further validation. Depending on the details of the PoS implementation, once a certain number of validators agree to the trustworthiness of a block, it is approved.
Blocks are validated by more than one validator, and when a specific number of validators verify that the block is accurate, it is finalized and closed — Investopedia
Since validators are not solving complex cryptographic puzzles, the energy required to maintain the network is way lower than what is required on a PoW blockchain.
The merge
The Merge was the joining of the original execution layer of Ethereum (the Mainnet that has existed since genesis) with its new proof-of-stake consensus layer, the Beacon Chain. It eliminated the need for energy-intensive mining and instead enabled the network to be secured using staked ETH. It was a truly exciting step in realizing the Ethereum vision — more scalability, security, and sustainability — Ethereum
The team at Ethereum essentially joined two software together, the Mainnet and the Beacon chain. The mainnet is essentially the entire blockchain without a consensus mechanism. It used to be secured by PoW since its genesis in 2015, the merge introduced the PoS as the new way to validate blocks or transactions.
It’s important to note that the Bitcoin blockchain is still powered by a PoW algorithm and by various metrics, it continues to be the largest blockchain in the world. Most computing power previously used to mine ETH can now be directed at mining Bitcoin exclusively.
