The second-largest cryptocurrency and the largest smart contract blockchain in the world, Ethereum just accomplished The Merge. As one of the most anticipated events in cryptocurrency for the past years, The Merge was completed on September 15, 6:43 a.m. UTC, after two years since the Beacon Chain hit the minimum threshold of 16,834 validators containing 32 ETH per validator. But what does the merge actually mean, and does it solve Ethereum's current problems?
The Ethereum Merge aims to change the consensus mechanism of Ethereum from Proof of Work to Proof of Stake.
Proof of Work is a consensus mechanism that utilizes hardware to solve an algorithm through trial and error. Imagine guessing a 4-digit passcode by running combinations starting from 0000, 0001, 0002 until you guess the "right" number but this time, the passcode is a multi-million number. Because there’s always only one right number per block, all miners compete to solve it, and whoever does so first gets to claim Ethereum coins as a reward. Due to the amount of energy and computer hardware needed to guess these numbers, Proof of Work was deemed to be a waste of resources by many.
On the other hand, Proof of Stake is a consensus mechanism but instead of using expensive resources, validators must deposit a minimum amount of cryptocurrency in a protocol — this is known as “staking.” From the pool of validators, a random one will be selected to mint a block, and then the blockchain selects another random set of validators to confirm that the new block is valid. Due to the randomness of Proof of Stake, it would be tough for a malicious actor to tamper with the blockchain’s data. To become a validator, one must stake at least 32 ETH. If they are caught operating with malicious intent, they could lose all of their staked crypto.
During Proof of Work, the total ETH issuance from mining was ~13,000 ETH / day. After the merge, it became ~1600 ETH / day, which is a staggering 87.7% decrease. If the gas fees of ETH is higher than 15 GWEI, ETH’s supply becomes deflationary. In the law of supply and demand, the low supply given the same demand causes prices to increase. To keep track of ETH’s economics and the current GWEI, you can check https://ultrasound.money/. In the first few hours of the Merge, ETH was deflationary.
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