The moment that crypto space has been waiting for years has come: Ethereum switched its consensus process from Proof of Work to Proof of Stake at 8:44 a.m. – and thus made history. Never before has a blockchain been switched to another consensus process on the fly. The Herculean task has been accomplished: a new era is beginning for Ethereum.
The moment that changed Ethereum forever:
Ethereum 2.0: What is changing now
The move to Proof of Stake marks a turning point for Ethereum, ushering in a series of changes. The energy-intensive mining will be disposed of as legacy – in future the network will be secured by validators and their deposits in ether, the stake.
As a result, the blockchain saves almost the entire amount of the previous energy requirement, as Uli Gallersdörfer, CEO at the Crypto Carbon Ratings Institute, confirms to BTC-ECHO: “The merger reduces over 99.99 percent of CO2 emissions. Not only Ethereum itself, but also other solutions based on Ethereum are becoming much more sustainable”.
As the largest smart contract platform, on which the majority of decentralized financial services (DeFi) and trading of NFTs takes place, the significantly improved energy efficiency of the Ethereum blockchain contributes to the decarbonization of the entire crypto sector. Essentially Ethereum-based Web3 development will be given a green coat of paint – which should also contribute to broader adoption of blockchain technology.
Proof of Stake throttles Ether replenishment
Proof of Stake also reduces the inflation rate, i.e. the distribution of new ethers. At Proof of Work, the circulation amount was expanded by 13,000 ETH daily in the form of mining rewards. The staking rewards, on the other hand, only amount to 1,600 ETH per day. This means that the amount of newly added ether is reduced by 90 percent.
Since the London Hard Fork, the transaction fees in ether have also been destroyed, i.e. permanently removed from the circulation amount, the cryptocurrency could tip into deflation if demand is high: more ethers are destroyed than are produced. The throttled supply of new ethers would therefore have positive effects on the price development.
Last but not least, the merge serves as a precursor for upcoming scaling solutions that ensure a higher throughput of the blockchain. So far, this has been around 15 transactions per second, resulting in high transaction fees and waiting times.
With the change in consensus, the step-by-step integration of scaling boosters – so-called layer 2 solutions – begins, with which the performance is to be increased to several thousand transactions per second and the gas fees are to be kept low. Most of the work on this should be completed in the coming year.
BTC-ECHO reports on the merge throughout the day and keeps you up to date on the latest developments. Here you will find all important articles about the Ethereum Merge.
In the August issue of BTC-ECHO Magazine, we also covered Ethereum, the merge and its consequences for the crypto ecosystem in the cover story. Go here to browse.
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