For the entirety of the cryptocurrency market’s history, Bitcoin has been the largest crypto currency with Ethereum trailing behind it by a wide margin. By the end of 2021, Bitcoin had over 180 million users worldwide while Ethereum peaked at one million active addresses per day in April 2019. But for the past few years, Ethereum has been working behind the scenes to pull a move that would make crypto history and give major cryptos like Bitcoin a run for their money.
Referred to as “The Merge”, this massive endeavor saw Ethereum switch from using proof-of-work, the algorithm that authenticates and secures its transactions, to proof-of-stake. Unlike traditional fiat currencies that rely on centralized organizations like banks to track how much money each user has, cryptos are completely decentralized.
This means that rather than granting control of the entire system to a single entity that has sole decision-making power, power is spread out among the multitudes and users cannot make major decisions or changes unilaterally. A decentralized currency allows for a more meritocracy, reduces chances of failure, and censorship, and gets rid of central authority.
The cryptocurrency market replaced centralized entities with proof-of-work, using it to keep cryptos up and running without a single government or company controlling the wheel. Proof-of-work has been especially crucial to solving the double-spending problem, a bug that allows users to double-spend their digital coins, potentially inflating the coin’s supply, debasing the currency, and making it worthless.
Despite this, proof of work uses an inordinate amount of energy, requires costly equipment, has expensive fees, and has low transaction speeds. The Merge, as it was called, moved Ethereum from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism. Unlike proof-of-work, proof of stake is much more energy efficient, has a significantly reduced environmental impact, and doesn’t require expensive equipment.
With proof-of-work, miners who have more computational power have higher odds of adding extra blocks to the blockchain. In proof-of-stake, miners with more Ethereum are more likely to win additional blocks. The move will completely eliminate crypto mining and promises to deliver significant environmental benefits. Now that Ethereum has switched to proof-of-stake, it is expected to consume 99.9% less energy.
Ethereum developers also believe that The Merge will make the cryptocurrency a lot more secure and alleviate some of the scalability issues that have plagued cryptos. With a market value of close to $200 billion, Ethereum is now the second largest crypto in the world after Bitcoin.
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