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What does the Ethereum merge mean?

If you’ve been on Twitter in the last week, you’ve probably seen breathless posts about the upcoming Merge. But what does it mean, and why does it matter?

First, the merge refers to the Ethereum Merge, which refers to big changes to Ethereum, the second-largest blockchain in the world (only after Bitcoin). To understand what’s happening, let’s look at some history.

What is Ethereum?

Ethereum launched in July of 2015 as a Proof of Work (PoW) blockchain — we’ll explain what this means in a moment. It was similar to Bitcoin, but with the key addition of enhanced smart contract functionality. Under the guidance of Vitalik Buterin and the founding team, Ethereum quickly became the dominant smart contract chain as developers began to build applications. The native currency ETH quickly rose in value until today where Ethereum sits comfortably, second in market cap behind only Bitcoin.

Energy Use of Blockchains.

As cryptocurrency rose in popularity and began to enjoy mainstream media coverage a regular criticism amongst journalists was around its energy consumption, the internet was set ablaze with misinformation, including claims that Bitcoin alone was going to consume all of the world’s power by 2020 (this did not happen).

It is accepted however, that Bitcoin is using more energy than a whole host of small countries however, due to the fact that it uses PoW.

Ethereum uses far less energy than Bitcoin, but still a significant amount, given that — until today — it has used PoW as well.


What is Proof of Work?

Proof of work requires miners to solve complex puzzles, often using specialized equipment called ASICs. This is very energy intensive but is necessary to prove real-world energy has been expended by the miner and to allow a real-world value to be assigned for the right to add transactions to the blockchain.

Additionally, any attempt to maliciously add false transactions would incur an incredibly high real-world cost — and this is what gives the PoW chain its security.

What is Proof of Stake (PoS)?

Proof of Stake (PoS) uses validators and removes the need for miners. Instead of using energy-intensive puzzle-solving mechanisms, a validator may simply stake an amount of the network’s native coin, with security being enforced via punishments for dishonest activity. Malicious actors will have their deposit slashed or destroyed allowing the network to be secured by trusted validators. This incentivizes all validators to act harmoniously, protecting their investment.

Benefits of PoS.

The obvious benefit to PoS is that it is orders of magnitude less energy intensive than PoW: for Ethereum, the blockchain will become something like 99.9% less energy intensive once it switches from PoW to PoS.

For companies like Thallo, who are building products to help tackle carbon emissions, it’s clear that PoS chains are far superior to PoW chains in terms of sustainability credentials.

Another, a lesser focused-upon advantage of PoS is that it encourages accessibility. PoS allows anyone who holds the native currency to benefit economically from validating the network. This is a huge improvement on the high barrier of entry of miners having to own specialized ASIC farms, or buying up all the GPUs (sorry gamers). At Thallo, we believe accessibility is essential. Enabling everyone to participate in all parts of the network — including security — is important for inclusivity and representation, and a must-have for any network we align ourselves with.

Implications of The Merge

Ethereum will migrate to Proof of Stake this week (we can be friends again now gamers!) giving builders like Thallo a chance to align with a less energy-intensive parent chain and removing some of the journalistic dogma surrounding energy use. Ethereum’s energy consumption will be reduced by an estimated 99.95% following The Merge. Ethereum will use dramatically less carbon to secure the chain, with the Ethereum foundation estimating it’ll expend around 0.01 TWh per year, as a comparison — it is estimated youtube expends around 240 TWh per year, implying that people consumed 45 times more energy watching Gangnam Style in 2019 than Ethereum, will use in a year under proof of stake!

What do you guys think about this new development? Tell us in the comments!