The Ethereum whitepaper was published in 2014 by Vitalik Buterin. It describes what Ethereum is and what it aims to become. In this whitepaper, it is mentioned that the Ethereum blockchain starts with the Proof of Work method but will eventually transition to the Proof of Stake method. This requires some explanation!
PoS and PoW?
The Proof of Work (PoW) method is the one used by the Bitcoin blockchain. This method relies on miners to secure the network. With the Proof of Stake (PoS) method, users (validators) can secure the network themselves by “staking” their assets. Both methods have their advantages and disadvantages.
Proof of Work is praised by supporters for its more decentralized nature and is said to be more reliable and robust than PoS due to its less complex source code. Opponents of this method argue that the energy consumption of miners is too high.
Proof of Stake is a faster method that uses 99.95% less energy. This method allows for significant scaling of the network, which is expected to lower transaction costs. However, opponents believe the chances of bugs and problems are greater due to the much more complex source code. There is also criticism of staking; individuals who stake more (often wealthy people) receive higher rewards than those who can stake less, potentially fostering inequality.
The Ethereum merge
The merger refers to the combining of two blockchains. This sounds a bit strange because Ethereum is simply transitioning to the Proof of Stake method, right? That is correct, but the PoS blockchain that Ethereum is transitioning to 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 miners will become unnecessary. The developers have managed to ensure that users or holders will not notice anything different about the merge. The merge is now scheduled for around September 15th.
Hard fork?
Just like software, blockchains can receive updates. To keep the Ethereum blockchain decentralized, voting (by miners and soon validators) must occur over updates before they are implemented. If a blockchain undergoes an update that makes the old chain incompatible with the new one, it is referred to as a hard fork. Sometimes, there is a large group of people who disagree with the update, and they may split off.
In the past, there have already been several hard forks of the Ethereum and Bitcoin blockchains. This resulted in Bitcoin Cash and Ethereum Classic, for example. There is discussion of an Ethereum split that does not transition to the PoS method. Miners are not happy that they are becoming obsolete. If new coins emerge after the fork, there is no guarantee that Knaken will list and/or support them. If this is the case, we will inform our customers through our newsletter. This time, it is also very likely that the value of any new coin will be very low or even negligible.
The price
Ether has been inflationary for a long time, which means that more ether coins are being created (mined) than are being burned. If the amount of ether in circulation grows, it is not good for its value.
After the merge, a “triple halving” is expected. This means, just like with Bitcoin halving, that the number of new ethers that enter circulation will be halved. With Ethereum, there is now talk of a one-time triple halving, which means that the amount that enters circulation will not halve once, as with Bitcoin, but three times! This is an important reason why many people are very optimistic about the upcoming price developments.
Conclusion
The merge of Ethereum is one of the largest and most significant events in the crypto world. However, regular users or holders will not notice an immediate difference. Over time, the merge should reduce transaction fees through scaling. The amount of ether in circulation is also expected to decrease after the merge, which is positive for the price level.
Perhaps the most important change that the merge will bring about immediately is the reduction of energy consumption by 99.95%. Vitalik Buterin himself suggests that Ethereum will only be 55% finished after the merge.
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