As the newest asset class to enter the financial scene, cryptocurrencies have gone from a mere experiment to the most notable financial innovation in modern history. Recently, the world’s never-ending fascination with cryptocurrencies has soared to even higher levels with the completion of Ethereum’s long-awaited update – the Merge.
As most crypto enthusiasts already know, cryptocurrencies are famous for their incredible potential as both a payment method and an investment option. However, in order to compete at the same level with traditional currencies and other already established assets, cryptos need more than potential. They need to work on addressing the shortcomings that are stopping them from reaching mainstream adoption.
The simple truth is that digital currencies have only been around for a very short period, especially when compared to conventional financial instruments, so they didn’t really have time to mature. That rapid rise of crypto has left many gaps and vulnerabilities in its wake, and it didn’t take much for investors and traders to notice these flaws.
Fortunately, developers aren’t oblivious to these issues either, so they’ve been working hard behind the scenes to come up with viable solutions and perfect their crypto projects. That’s also Ethereum’s case which has recently stepped into a new era of its development following the Merge.
What is the Merge?
The Merge has been talked about a lot over the past few months as stakeholders were growing restless with anticipation, and yet the general population still doesn’t know much about it. So, let’s start by shedding some light on the topic in order to level the playing field.
As you may already know, Ethereum serves as one of the main pillars of the current cryptocurrency environment, with a large number of crypto projects and other applications being based on its technology. The Ethereum platform is also a work in progress, so it has undergone various updates and improvements over the years.
The Merge is the most recent upgrade to the Ethereum blockchain and the biggest one to date. So, we’re not talking about a minor tweak with negligible consequences but about a plan that has been many years in the making and is set to transform the very structure of the platform. Given that the network’s native crypto, Ether, is the second-largest digital currency by market capitalization after Bitcoin, a lot of stakeholders are going to be affected by the changes brought upon by the Merge. People are wondering how the update is going to impact the current Ethereum price and what long-term effects can be expected from it.
As the name implies, the Merge refers to the fusion of two different blockchain technologies – the original Ethereum Mainnet on which the platform operated exclusively up to a point, and the new Beacon Chain, which was already functioning in parallel. After the Merge was completed on the 15th of September and the two blockchains merged, Ethereum switched from a proof-of-work to a proof-of-stake consensus.
In the initial proof-of-work mechanism, miners engaged in a race to solve an arbitrary and complex mathematical puzzle – that’s the work. The one who provided the solution first, or proof, got to update the blockchain and earned crypto rewards, while the rest of the participants validated the transaction. While this mechanism was extremely secure and efficient, it required vast amounts of computational resources, which led to high energy consumption. Proof-of-stake, on the other hand, relies on selecting validators randomly in order to validate transactions and add new blocks onto the blockchain, thus solving the energy consumption issue.
What happens next?
So, now that Ethereum has finally passed the Merge threshold, what can stakeholders expect next? First of all, like it was planned, the update is going to boost the network’s sustainability and lower energy consumption by up to 99%. Participants may also enjoy lower fees and faster transaction times as an indirect consequence.
However, although the Merge was completed, this only accounted for 55% of Ethereum’s total transformation, as the network’s co-founder Vitalik Buterin mentioned. So, now the most interesting and important aspects to pay attention to have to do with the next stages in Ethereum’s evolutions – the Surge, Verge, Purge, and Splurge.
As the next significant update, scheduled to enter into effect in 2023, the Surge is going to introduce a brand-new feature called sharding which will basically split the network’s database into smaller fragments called shards in order to spread the load and improve scalability. Sharding will provide a series of benefits, such as reducing network overload, facilitating faster transactions, improving data availability and reducing points of failure.
The Verge targets a different set of issues that relate to the network’s reliance on nodes as a data storage solution. This upgrade proposes the introduction of the Verkle tree scheme, which is similar to the Merkle tree but allows for storing larger amounts of data in smaller proofs. This means Ethereum will be able to reduce node size and encourage more network participation.
Then there’s the Purge, an upgrade that also targets storage issues, but it refers to the space required to store Ether on a hard drive. The Purge aims at discarding old data by introducing a state expiry. Participants will have to dispose of data that has passed the one-year mark, which will render obsolete the nodes’ role in storing historical data. With less data to be kept on a hard drive, there will be more space and, thus, less congestion on the Ethereum network.
The final upgrade on Ethereum’s calendar, the Splurge, is going to bring a host of additional improvements that are meant to ensure the proper functioning of the network after all the other upgrades are completed. This will include all the features and tweaks that could not be addressed in the previous upgrades. However, if things go according to plan with all the updates, the Splurge may become unnecessary.
It seems there are plenty of interesting developments coming up for Ethereum in the near future, so it’s going to be very interesting to follow every step of the process and see how things will evolve from here.
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