What is Ethereum?
While Bitcoin is often seen as the solid foundation of the Web3 world, Ethereum is a dynamic extension of it. Ethereum is not just a Web3 project; it is a multi-faceted platform that has opened the door to countless innovations such as decentralized finance (DeFi), decentralized applications(DApps) and smart contracts. These unique features have given Ethereum a prominent place in the blockchain industry, with huge potential that is even already being realized.
The Need for Change
Ethereum’s original consensus mechanism, Proof-of-Work (PoW), is the process by which transactions are verified by miners to then be added to the blockchain. Although PoW is a secure mechanism, it requires a lot of computing power and energy. The Merge, which took place in September 2022, marks Ethereum’s transition from this energy-intensive PoW to Proof-of-Stake (PoS). In PoS, the creation of new blocks and the security of the network is entrusted to those who own Ethereum, making the entire system more efficient and environmentally friendly.
The Ethereum Merge Explained
The Merge is not just a technical change; it is a fundamental shift in how Ethereum works. Previously, Ethereum relied on miners and their computers to verify transactions – this was the PoW system. But with the Merge, Ethereum switched to the PoS system, where the network is secured by people “deploying” or holding Ethereum. This means we no longer have to rely on energy-intensive miners, which is a big step toward a greener Ethereum.
Advantages of the Ethereum Merge
Sustainability: The move to Proof of Stake (PoS) has reduced Ethereum’s energy consumption by more than 99%, making a notable contribution to environmental friendliness.
Security: The move to Proof of Stake (PoS) has significantly reduced the risk of certain types of attacks on the Ethereum network, strengthening the overall security of the platform.
Economic Changes: After the Merge, the issuance of new ETH is significantly reduced, which may lead to economic changes within the Ethereum ecosystem. The image below shows the number of Ethereum tokens on offer. Since the Merge, we have seen supply quietly decline and it may be concluded that Ethereum is deflationary. See more facts and figures here
Ethereum’s Future and Potential
Despite being relatively young, Ethereum already has an impressive market capitalization and reach in the Web3 world. The recent Merge, represented by EIP-3675 (Ethereum Improvement Proposals), is just one of many developments in Ethereum’s roadmap. With EIP-4488 as the latest and many other planned enhancements, Ethereum is on the eve of numerous innovations that will shape the future of decentralized technology.
Ethereum’s Merge is a testament to the ongoing evolution and pursuit of improvement within the blockchain community. As Ethereum continues its developments, it promises a future of innovation, sustainability and growth. Similarly, Merge is a clear step in the right direction.