The Ethereum blockchain, the largest behind Bitcoin, is about to begin a major upgrade.
called “Merge” Ethereum is switching to a more energy efficient method of validating transactions made on its platform known as Proof of Stake.
This upgrade is similar to how the shift from using dial-up modems to fiber optics allowed the Internet to be used for a wider range of uses, including video, online storage, and music streaming. told CNBC Make It.
Let’s take a look at what the consolidation means and how it will affect cryptocurrency investors.
This merge will move the blockchain from a Proof of Work (PoW) model to a Proof of Stake (PoS) model. Both are algorithms used to allow users to add new cryptocurrency transactions and keep records of them on the blockchain network.
Current proof-of-work models require large amounts of energy to power computers as they race to solve complex mathematical equations to validate transactions.
On the other hand, proof of stake, as the name suggests, requires the user to have a “stake” in the blockchain.
This means that Ethereum users will have to make a fairly large investment up front in order to authenticate their transactions.
The Ethereum merger isn’t expected to result in faster network speeds or lower transaction costs anytime soon, but investors may benefit in the future.
“While the outcome is uncertain, the consolidation could be bullish for crypto investors in the long run as it lays the groundwork for future upgrades in speed, fees and ecosystem development,” said King. said.
Faster transactions and lower fees could ultimately lead to more users, which could impact the value of Ethereum’s native cryptocurrency, which investors use to trade on the platform. There is a possibility
As the number of investors increases, the supply of ether should decrease, says Vladimir Gorbunov, CEO and founder of Choice.com’s MetaFi ecosystem. Also, as the supply of Ether dwindles, the value of individual coins can rise, which is welcome news for investors.
ether According to Coin Metrics, one coin is valued at approximately $1,600 as of September 14, 2022.
As mentioned earlier, it is hoped that the integration will make blockchains more energy efficient.
Currently, Ethereum’s carbon footprint is comparable to Singapore’s and its total energy consumption is comparable to the Netherlands. According to its website.
The merger is expected to reduce Ethereum’s carbon footprint by more than 99%, potentially making the platform more attractive to green investors.
“This merger will definitely make Ethereum more secure,” says Gorbunov. After the merger, the initial investment required to validate transactions on the blockchain will be around $55,000 or 33 ETH, he said.
This is the cost that anyone, including hackers, must bear to break into a network in the first place. With that barrier, Gorbunov hopes Ethereum will become more secure.
However, King warns that blockchains will always be vulnerable to hackers.
“After consolidation, Ethereum’s vulnerabilities may be different due to fundamental design changes in the network, but the security risks will always remain the same,” he says. “Cybersecurity risks are always top priority.”
Remember that Ethereum, like many cryptocurrencies, is a highly volatile asset with no guarantee of profit and subject to unpredictable fluctuations in value. Experts recommend not investing more in these types of assets than you can afford to lose.