The Ethereum whitepaper was published in 2014 by Vitalik Buterin. It describes what Ethereum is and what it should become. This white paper also describes that the Ethereum blockchain will start with the Proof of Work method, but it will switch in time to the Proof of Stake method. This requires some explanation!

PoS and PoW?

The proof of work (PoW) method is also the method that the Bitcoin blockchain uses. This method uses miners that secure the network. With a proof of stake (PoS) method, the users (validators) can secure the network themselves by "staking”.

There are pros and cons to both methods.

Proof of Work is praised by proponents for its more decentralized character, and because of the less complex source code it is more reliable and robust than PoS. Opponents of this method find the energy consumption of the miners too high.

Proof of Stake is a faster method, which also uses 99.95% less energy. This method makes it possible to significantly scale up the network, which should reduce transaction costs. Opponents find the possibility of bugs and problems higher because of the much more complex source code. The staking has also been criticised. People get compensation for the amount they stake. The people who can stake a lot, and are therefore more rich, receive higher compensation than the people who can strike less. This could increase inequality.

The Ethereum merge

The merge refers to the merging of 2 blockchains. That sounds a bit strange, because Ethereum would just switch to the proof of stake method right? Yes that's right, but the PoS blockchain that Ethereum is migrating to, has started creating blocks more than a year ago. Now that everything has been tested and works well, it is finally time for the merge and the miners will therefore become unnecessary. The developers have managed to ensure that the normal user or holder does not have to notice anything from the merge. The merge is now scheduled for around September 15.

Hard fork?

Just like software, blockchains can get updates. To keep the Ethereum blockchain decentralized, the updates must be voted on (by the miners and later on the validators) before they are implemented. If a blockchain undergoes an update, and the old chain is no longer compatible with the new one, then this becomes a hard fork. Sometimes there is a large group of people who do not agree with the update. They may then split off to second chain.

There have been several hard forks of the Ethereum and Bitcoin blockchain in the past. This resulted in, for example, Bitcoin cash and Ethereum classic. There is much speculation about a new ethereum fork that will not switch to the PoS method. In principle, an ordinary user or holder will not notice this. If new coins come up after the fork, there is no guarantee that Knaken will list and/or support it. We will inform our customers via our newsletter if this would be the case. It is very likely that the value of the potential new token will be very low or even negligible.

The price

The ether has long been inflationary. In short, this means that more Ether coins are found (mined) than are burned. If the amount of Ether in circulation grows, it is bad for the value of the ether.

After the merge, a “triple halving” is expected. Just like with the bitcoin halving, this means that the number of new ether that is in circulation is halved. Ethereum is now talking about a one-time triple halving, which means that the amount that comes into circulation is halved not 1x as with bitcoin, but 3x(!). This is an important reason why many people are very positive about the upcoming price trend.

Conclusion

The Ethereum merge is one of the biggest and most significant events in the crypto world. However, normal users or holders will not notice anything immediately. In the long run, the merge should make it possible to reduce transaction fees by scaling up. The amount of ether in circulation will also decrease after the merge, which is positive for the price level.

Perhaps the most important change that the merge immediately brings about is the reduction of energy use by 99.95%. Vitalik Buterin himself, suggests that Ethereum after the merge is only 55% complete.

Interested in investing in Ethereum? Buy your Ether safely now at Knaken.eu via buy ethereum.

Discover more blogs