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DAILY NEWS ANALYSIS

  • 21 September, 2022

  • 6 Min Read

Ethereum Merger

Ethereum Merger

The second-most valued cryptocurrency in the world, Ethereum, just underwent a substantial software upgrade.

About:

  • Ethereum redesign: This process is referred to as "The Merge."
  • It will do away with the requirement for cryptocurrency miners and massive mining farms, which previously powered the blockchain through a system known as "proof-of-work" (PoW).
  • In its place, a "proof-of-stake" (PoS) mechanism has been adopted, which randomly selects "validators" to approve transactions in exchange for a modest payment.

How it has operated thus far:

  • Since Ethereum is a decentralized cryptocurrency, its network does not have organizations like banks approving transactions.
  • Before, the PoW consensus mechanism—which was primarily carried out by miners—was used for approvals.
  • The first miner to complete a complicated mathematical puzzle would be chosen as the validator. Miners would compete to solve these riddles using a vast infrastructure of cutting-edge computer technology.
  • Crypto farms, which are enormous warehouses filled with rows of computers that would solve the problems, were essentially the only source of power for this method.
  • Problem: These energy-guzzler mining farms were a major environmental sustainability concern because they frequently consumed more electricity than entire nations. This was one of the main complaints of the cryptocurrency business.
  • The "Merge" and the switch to the PoS consensus process are two recent changes.
  • Although the new idea would eliminate the need for miners and mining farms, Ethereum would still be a decentralized platform.
  • Instead, a validator will be chosen at random by an algorithm from a group of individuals who have "staked" (basically, pledged at least 32 Ethereum tokens on the network) their money.
  • As a result, the Ethereum network would no longer require any miners.
  • Cardano, Binance Coin, and Solana are among the cryptocurrencies that employ proof of stake.

Importance of the Merge

  • Enhanced Security: It will significantly increase the security of transactions on the Ethereum network.
  • Supporting Network: Since the Ethereum network serves as the foundation for some of the most well-known cryptocurrency applications, like non-fungible tokens (NFTs) and decentralised finance (DeFi), the redesign may have long-term repercussions.
  • Reduced Energy Consumption: The switch to PoS will result in a nearly 99.95% reduction in the energy used by Ethereum.
  • Ecologically Beneficial: Since it promises to reduce its carbon impact almost totally, it is also being viewed as an environmentally responsible action.
  • Reduced Cost: It will assist in lowering the fee per transaction that miners and validators charge.
  • More Returns: By taking part in this new validation procedure, it will also make it possible for regular people to profit from ethereum (staking).

Ethereum

  • The second-most popular digital token after bitcoin is ether (ETH), the cryptocurrency of the Ethereum network (BTC).
  • Everyone has unfettered access to digital currency and data-friendly services.
  • Ethereum can be programmed, which makes it ideal for many various types of digital assets, including Bitcoin.

Bitcoin

  • Satoshi Nakamoto, an unidentified hacker or hacker collective, created Bitcoin in 2009.
  • A "peer-to-peer electronic cash system" was used to describe it.
  • Due to the lack of servers and centralized power, the system was entirely decentralized.
  • The first cryptocurrency to gain widespread acceptance as Bitcoin. Later, more cryptocurrencies such as Litecoin, Namecoin, and PPcoin emerged.
  • In many ways, ether and bitcoin are comparable.
  • Both of them are digital currencies that can be bought and sold on online exchanges and kept in different kinds of cryptocurrency wallets.
  • Both of these tokens are decentralized, which means that no central bank or other institution issues or controls them.
  • Both make use of the blockchain, a distributed ledger technology.

Digital currency

  • It is a form of digital money that can be used in place of real money.
  • Cryptography is employed in cryptocurrencies to safeguard and verify transactions. Controlling the supply of cryptocurrency is another purpose for it.

Cryptocurrency characteristics:

  • Irreversible: A cryptocurrency transaction is irreversible and cannot be undone.
  • Intangible: There is no physical asset or guarantee backing cryptocurrencies.
  • Instantaneous and global: Because the network is global, the transaction can be completed instantly and without boundaries anywhere in the world.
  • Secure: It makes use of cryptography, which is nearly impossible to crack.
  • No central authority: Users are solely accountable for all transactions; there is no gatekeeper like there would be in a government or central bank.

Source: The Hindu


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