What does ‘The Merge’ mean for cryptocurrency?
If you follow the world of cryptocurrency, you’ve probably heard rumblings over the past weeks about “The Merge,” something big coming to Ethereum. Developers have already started to get ready for the change, expected to start in mid-September.
A local tech expert said that if the operation goes off smoothly, most people won’t know that anything changed.
But what if The Merge crashes the entire network? Here’s a look at the upcoming changes.
What is Ethereum?:
First, a little background on the cryptocurrency in question, Ethereum. It’s the second-largest token currently available on the market, behind Bitcoin.
Ethereum is often compared to Bitcoin, but the two projects were made for different purposes.
Bitcoin is a peer-to-peer sharing network that allows users to move currency without the need for a central authority or bank. Ethereum, on the other hand, was designed as a programmable blockchain that allows users to create and develop decentralized apps, or dApps. Ether, or ETH, is the currency developed to pay for things on the Ethereum network.
The Ethereum blockchain hosts many other digital currencies, and is the blockchain behind the recent NFT craze.
As thousands of people move money, create and play online games and build their businesses, million of computers are buzzing away in almost every part of the globe powering the Ethereum blockchain. It’s the power that all of these computers are drinking up that gives many people pause when considering getting involved with cryptocurrencies.
However, with the upcoming merge only a few weeks away, the greedy need for CPUs could become a thing of the past.
What changes with The Merge?:
There are thousands of different kinds of cryptocurrency. For the most part, crypto falls into two categories: coins and tokens. Bitcoin, Dogecoin, Tether, Cardano and others are coins and for the most part, can be used in the same ways as traditional currency.
Tokens, on the other hand, are assets that live on a blockchain. While coins are created to live on their own blockchain, tokens are made to be used on an already existing platform. An NFT would be an example of a token. The NFT is made by an artist, lives on the Ethereum blockchain, and can be sold or traded on that same blockchain.
Ethereum, as a blockchain, currently uses a process called “proof-of-work” to verify crypto transactions. Since there isn’t a bank, government or larger authority overseeing the thousands of transactions that happen every minute, users called “miners” group transactions happening around the same time into groups of data called “blocks.” Miners can then look at these blocks, or groups of transactions, and verify them all together at once. This process is essentially “building the blockchain.”
So even though transaction requests happen dozens of times per second, this organizational system means that transactions are verified, histories are preserved and everyone using the Ethereum network knows that the information they see is up-to-date and accurate.
But this verification system takes a lot of computing power, and a lot of energy. This one of the main criticisms lodged against crypto.
However, the new system, “proof-of-stake,” shouldn’t have the same issues with power consumption.
“The Merge” refers to the planned switch between the two consensus systems.
Currently, anyone who has the time and computing power to devote to “mining” transactions can get into the crypto game. But as things shift to PoS, you’ll need to put your ETH where your mouth is if you want to become a validator.
“Validators” need to meet a few criteria before becoming officially approved and able to participate in the new workflow.
First, the potential validator needs to pay a deposit of 32 ETH. Then they have to be able to show they can run three pieces of software: an execution client, a consensus client, and a validator.
Once verified, this validator will be randomly selected to be a block proposer, or the point person responsible for creating a new block of transactions to be verified on the Ethereum blockchain. This validator, along with several randomly chosen others, will then determine if the block of transactions they are reviewing is valid or not.
Under this new system, there are fewer machines doing less computing, and in theory, using much, much less energy.
But as with any major change to an operating system, there are risks, and a lot of unknowns.
Possible effects of The Merge:
The Merge is expected to begin in the next few weeks, with a start date in the middle of September. So how will this change in the blockchain affect the average American?
According to Dave Perrill, the CEO and co-founder of Compute North, if everything goes well, no one should suspect that anything has changed.
Perrill has worked in data centers and managing computer services for the last 25 years, and first got involved in crypto in 2017. It wasn’t too much of a stretch for Perrill to see the parallels between the early days of the internet and everything that’s happening today.
“I started an internet provider in ’93,’94, dial-up DSL, email web hosting, and all that stuff was so new, so unique,” Perrill said. “And it was kind of quirky, right? It was hard to use, you had to scream at dial-up noise, you know, Mom picks up the phone, she disconnects you? Yeah, it was slow, you had to put some kind of specialized software, and now it’s fully integrated in your iPhone, right? People don’t even think about the Internet, because TCP IP, which is now you know, the standard, continues to work and continues to evolve.”
He said he sees the cryptocurrencies in the same light. Right now, they exist as a technology that hasn’t been widely adopted by the general public because it’s very technical and can be difficult to understand. Perrill thinks that in 10 years, users won’t bat an eye when talking about the networks.
“But I think when technology works, and when technology really wins, because when you don’t think about it, it’s kind of like the plumbing in your house,” he said.
Even though Bitcoin first launched in 2009 and Ethereum in 2015, crypto is still considered to be in it’s infancy, with ample room for growth and evolution. The Merge is just a part of that continued evolution.
“Really what it does, it fixes trust. It ultimately allows two people that are anonymous on the internet, to ultimately transact without having a third party intermediary in the middle,” Perrill said. He went on to compare the transactions completed online to those we would make in the offline world.
“Think about everything that we transact in the real world, we have a bank, we have a lawyer, we have, you know, some sort of trustee, we have the government, there’s almost always somebody in the middle, said Perrill. “And what blockchain and what decentralized networks allow that to do is take out that intermediate third party, and ultimately, you know, allow the network to make that transaction occur anonymously, but yet securely.”
With a major change on the crypto horizon, investors and developers have been keeping a close eye on the news. Markets have been dipping and spiking as people weigh the potential risks and rewards of the new consensus algorithm.
“It’s like changing out the engines in an airplane while it’s flying,” Perrill said with a laugh.
He’s taking more of a “wait and see” approach to network while waiting to see what’s going to happen next. He noted that what we’re seeing right now is a short-term movement in the market, which can be difficult to understand in the long term.
“I think that’s going to take time for that to play out. And I go back to my analogy of ’94. You know, the use cases were just so minimal in the early days that you really had to step back to understand ‘Where does this go?’, he said.
Whether or not you’re an investor in crypto, someone looking to get involved or just a curious bystander to the ever-changing online landscape, The Merge has potential to change not only crypto, but computing in general.
“It’s early days, it’s early innings, a lot left to play out,” Perrill said. “And I’m a longtime believer in the platform and you know, just computing in general, whether that be crypto or artificial intelligence, machine learning, or, you know, genome sequencing. Just all these massive workloads that need to happen, should be done more sustainably, more low cost, and that’s where we’re excited to play our part in the ecosystem.”
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