Dubbed the "merge," Ethereum is switching to a more energy-efficient method of validating transactions that take place on the platform, known as proof of stake. The upgrade is similar to how the transition away from using dial-up modems to fiberoptics enabled the internet to be used for a wider variety of things, such as video, online storage and music streaming, Greg King, founder and CEO of Osprey Funds, tells CNBC Make It.
Here's a look at what the merge means and how it will affect crypto investors.
Before the Merge there was a significant amount of impact on the environment from these mining operations. The incredibly enormous consumption of energy, coupled with the carbon emissions, was a cause of concern.
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These validators are granted specific amounts of fresh coins, enabling them to earn passive income without disposing of their holdings. The Ethereum Foundation has reported that the implementation of the 'Merge' has led to a reduction of over 99 per cent in Ethereum's energy consumption.
However, a drawback was that coin holders who had staked their coins were unable to unlock them. By making a blockchain more interoperable through smart contracts and ERCs, the Ethereum blockchain has become the most compatible blockchain in crypto.
So, just like the apple store, blockchain projects can launch on Ethereum's blockchain, creating an ecosystem consisting of hundreds of projects that are available to users. But before we dive into PoW, a quick overview of blockchain technology is needed.
Blockchains are comprised of multiple blocks that function as storage units for bits of information. For instance, a block could hold a patient's medical records, logistical records, voter ballots or records of transactions between counterparties.
The more pieces of information that are recorded, the more blocks are needed and a blockchain is formed. Each block also has its digital fingerprint known as a 'hash'.
Lots of hope, but still a risk
Gareth Soloway, chief market strategist at InTheMoneyStocks. But could the Ethereum merge actually cause a change in the way Bitcoin operates? And who knows — down the road, maybe they'll be tempted to do something like this too. But that's not being contemplated yet.
- Kryptowährung investieren ja oder nein
- Dilution and capitulation major concerns for world's second-largest cryptocurrency Bitcoin may be straddling 30k, but Ethereum ETH hodlers have other worries on their minds with the Shanghai hard fork upgrade due to take place in the latter hours of this evening Wednesday, April 12 for retrospective readers.
Last year it rallied in the weeks leading up to the upgrade. The upcoming change, known both as the "Shanghai" upgrade and, more recently, the "Shapella" upgrade, is scheduled to take place April 12 and will allow investors to withdraw staked ether from the network for the first time ever.
It's meant to strengthen Ethereum's proof-of-stake consensus mechanism, which it migrated to in September's "Merge" event, which ultimately would allow more liquidity to ether investors and stakers. Ethereum started with a Proof of Work consensus mechanism.
Post-merge, Ethereum now uses the Proof of Stake consensus mechanism only. Proof of Work On a blockchain using Proof of Work as a consensus mechanism, members of the network compete for the chance to be the one chosen to add their copy of transactions to the ledger. They do this by guessing a long string of letters and numbers out of trillions of possible combinations.
Proof of Work, which is used by Bitcoinis criticised for its impact on the environment.