While the surprisingly long and varied history of blockchain cryptocurrencies has come with many chapters, we stand in 2022 at the advent of one of the most notable of them all.
While the history of Bitcoin, the world’s first mainstream proof-of-work cryptocurrency, paved the way for digital currencies with intrinsic tradable value on blockchain technology – secured and audited autonomously via distributed ledgers worldwide – the reality of the crypto ecosystem today is far more complex.
Nevertheless, as rising proof-of-stake cryptocurrencies continued to make headlines as blockchain technology and DLT investments matured, Ethereum has finalised the landmark decision to complete ‘The Merge’ and evolve from a proof-of-work to a proof-of-stake protocol.
As the world’s second largest and second most mainstream cryptocurrency, Ethereum has created a new page for the blockchain history books in September 2022. With that being the case, what does this all mean for blockchain technology, for Ethereum, and for the future of this radical and fast-paced market?
What makes the Ethereum Merge so important?
The Merge for Ethereum has essentially fused the world’s second most adopted cryptocurrency with the Beacon Chain blockchain proof-of-stake ecosystem. Without getting overly technical, the simple reasoning behind this strategic step is to help enhance the widespread adoption of blockchain and distributed ledger technologies.
In autumn 2022, the international market value of the cryptocurrency market dipped below US $1 trillion – an indication that many of the concerns surrounding both global fiat economics and the viability of blockchain digital currencies’ volatility have taken root.
It can be scary that this is so – yet it forms the necessity that is the mother of invention, as The Merge of Ethereum proves. The Merge has been put into action implicitly so that Ethereum users can continue to enjoy the benefits of the technology – distributed ledger systems of value, smart contract capabilities, widespread user adoption and so forth – while also remedying many of the challenges and issues that have classically caused trepidation in those looking to invest in blockchain solutions in the past.
Evolving beyond proof-of-work protocols
Essentially, the proof-of-work system of cryptographic value has been the source of blockchain digital currencies establishing the circulating ‘coins’ among their distributed ledgers – and also informed their value in the likes of the Bitcoin mining gold rush within the last five to 10 years.
The proof-of-work system works in ways that even casual blockchain observers often now understand. A computer, or pooled collection of computer components operating in tandem, are put to work intensively calculating deeply complex mathematical problems in order to secure the blockchain.
The sheer difficulty of these proof-of-work problems helps the network remain secure and rewards users who commit to growing the network by mining cryptocurrencies. For years, this has been how the bulk of such blockchain digital assets have worked – from Bitcoin and Ethereum to lighthearted DLT cryptocurrencies like Dogecoin, or privacy-centric blockchain assets such as Monero.
The creation of proof-of-work blockchain cryptocurrencies has been incredibly transformative. Yet the evolution of the idea to a proof-of-stake mechanism arrived comparatively late in the recent history of blockchain assets as a whole.
In other words, Ethereum was created as a proof-of-work cryptocurrency because that was simply our collective understanding of the blockchain at the time. As the advantages of proof-of-stake have become more apparent, their role in overcoming former shortcomings in the Ethereum ecosystem have proven a pivotal incentive empowering The Merge.
What problems with Ethereum are solved by The Merge?
While Ethereum is a hugely popular cryptocurrency, its status as a pioneer of blockchain technologies has often left both it and its creator a target of widespread criticism.
Many of these criticisms stemmed from genuine concerns that the Ethereum protocol has evolved to overcome – meaning that this kind of healthy discourse is central to the ongoing evolution of DLT and blockchain technologies going forward.
For example, the high gas fees – the mechanism by which blockchain assets are traded on the Ethereum network – were a major hurdle in its mainstream adoption and capacity for trust in the population for quite some time. In summer 2022, gas fees on the Ethereum network fell to under US $2 – a very welcome development.
The idea of resource intensivity has been a huge part of any mainstream conversation surrounding blockchain technologies for some time. The ubiquity of proof-of-stake protocols and mechanisms has been the backbone of blockchain solutions for years, and one aspect of this reality that has never failed to inspire scorn in a concerned public is the intensive level of energy use it requires.
Solving complicated cryptographic mathematical problems to secure a blockchain network is incredibly difficult. Yet, as the cornerstone of how the proof-of-stake ecosystem of cryptocurrencies like Bitcoin have always functioned, it made sense that Ethereum used similar strategic and technological approaches. Naturally, this drew plenty of detractors prior to The Merge.
Indeed, the media has already suggested that simply switching the Ethereum network to proof-of-stake instead of proof-of-work via The Merge has already reduced the entire planet’s energy consumption by some 0.2%.
At a time in which concerns over both the planet’s ecosystem and rising energy costs continue to cast a long shadow over global affairs, the timing of The Merge for Ethereum could not be better. The blockchain ecosystem of Ethereum has reduced its energy consumption by 99% by switching to proof-of-stake protocols – while sustaining its security, DLT ecosystem, smart contract capabilities and widespread adoption.
Naturally, creating a more energy efficient blockchain asset market benefits everyone – from investors to new adopters and technological innovators. Fortunately, those who were mining Ethereum via old proof-of-stake technology are often seeing the outstanding amounts of ETH due to them after The Merge being honoured – even though their expensive computer hardware might now be standing comparatively idle.
Will more legacy cryptocurrencies such as Bitcoin follow the shift from proof-of-work to proof-of-stake blockchain and DLT technology? The realities of this are more complex. After all, nobody knows who created Bitcoin, and that cryptocurrency in particular was created to operate autonomously enough as to never invite intervention in its coding framework.
As such, both proof-of-work blockchain systems and the more energy intensive computing resources that they demand will remain in action, both in Bitcoin and in lesser known blockchain assets.
Yet with Ethereum being such a versatile, viable and popular platform in the blockchain technology space, the magnitude of the commitment being made in switching from proof-of-work to proof-of-stake cannot be underestimated. In fact, it only opens the future to even more possibilities.
Growing beyond the limitations of today
As explored in the Ethereum Vision, The Merge, shifting to proof-of-stake protocols, was just one of many incentives proactively being worked on throughout the world’s second biggest blockchain.
Each innovation that Ethereum successfully introduces is designed to move past the limitations put before its ultimate goal of decentralisation, distributed ledger financial ecosystems and smart contracts securing equity for all, no matter where in the world they call home.
Energy consumption was a massive issue that the evolution of Ethereum from proof-of-work to proof-of-stake was, in part, set in motion to achieve. Yet The Merge is truly a new page, if not an entire new chapter, in the evolution of blockchain technology, because it invites us to consider the next steps forward.
Those are steps not only towards the vision of Ethereum, but the vision of blockchain technology and its capabilities for humanity as a whole. With mainstream crypto asset blockchain ecosystems like Ethereum increasingly adopting the proof-of-stake model, the concerns surrounding the blockchain and its use of energy worldwide is becoming a welcome thing of the past.
Yet there is still much to be done in order to ensure the mainstream trust and adoption of not only cryptocurrencies, but also blockchain technology at large. After all, although cryptocurrencies and distributed ledger financial systems are the most famous application of blockchain technologies, they are far from the only application of this exciting technology.
With the applications for blockchain technology enhancing everything from entertainment and video games to complex national energy infrastructure and supply chain logistics management, it’s absolutely welcome that the developments being made in proof-of-stake adoption are proving that many of the fears surrounding these technologies can finally be put to rest.
Yet as the Ethereum Vision makes clear, we all have much ahead of us yet to solve – from the computer storage space and speed of network connectivity empowering blockchain solutions, to the development of secure distributed ledger platforms that can make the litany of cryptocurrency scams and frauds a thing of the past.
It is a long road ahead for us all, yet one in which Ethereum and The Merge has laid an astoundingly confident new foundation. As this new page for both Ethereum and blockchain technologies unfolds before us, waiting to be written, we are excited and inspired by the more streamlined and accessible ecosystems happening the next wave of blockchain and crypto innovation.
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