The Ethereum Big Merge: panacea for climate change or goldmine for scammers?
The Ethereum Big Merge is coming soon, but will it help with climate change, and is there anything to worry about?
Unless you have been living on Mars for the last year, you will have noticed that the planet is heating up: climate change has overwhelming evidence that humans are the baddies - check out NASA for the data. Cryptocurrency has come under the climate change spotlight because crypto-mining is an energy-intensive process.
This fact is not lost on the crypto community. As a reaction, Ethereum is going to make mega changes that are expected to reduce its energy use by almost 100%: a process known as "The Merge" is about to happen, and with it, the way Ethereum works will change for the betterment of the planet. Great! I hear you all say. But is this move a generally good idea, or can scammers take advantage?
A bird’s eye view of Ethereum
Ethereum is the world's second-largest crypto platform, with Bitcoin #1. However, all has not been well in the crypto arena. In November 2021, Ethereum was worth around $560 billion. At the time of writing, Ethereum's market cap had dropped to just above $199 billion. That's almost 65% lost in less than a year. This crypto wobble has affected bitcoin as much as Ethereum: Bitcoin and Ethereum provide the backbone for crypto coins, but Ethereum is also famous for being the tech behind decentralized apps such as some self-sovereign wallets and NFTs. As a side note, Jack Dorsey's new endeavor, TBD, will focus on self-sovereign identity on Bitcoin.
A wobbly market cap is not a good thing for any business, least of all those involved in finance. As the world's paranoia on climate issues comes to a head, estimates show that Ethereum's global annual energy usage was, by May 2022, almost 100 TWh. Campaigns such as "Change the Code, Not the Climate" claim that bitcoin alone will warm the planet by two degrees Celsius and compares Bitcoin's energy usage to requiring more electricity than Sweden. The group pulls out Ethereum's "The Merge" as a beacon of hope in the climatic abuses of crypto and blockchains.
This level of energy usage in a world acutely aware of the geopolitical and climatic impact of energy use has also affected the interest in crypto. As energy use has increased, the crypto market cap has fallen.
What is Ethereum’s “The Merge”
As good citizens of planet Earth, the Ethereum team is about to embark on a significant update to how Ethereum transactions are handled. This change involves moving the current proof of work (PoW) to a proof-of-stake (PoS). Ethereum claims this will reduce energy usage by 99.95%. The result of this major overhaul is known as "The Merge." This will involve a merger of Ethereum's mainnet with the Beacon Chain's proof-of-stake system.
Proof of work vs. proof of stake
Ethereum and other blockchain-based currencies use so much energy because of the process known as 'mining.' Blockchain miners provide massive amounts of decentralized computational power to verify and record blockchain transactions. This process is known as 'proof of work' (PoW) and is a competitive system, i.e., not all miners make money on every transaction they verify. Successful miners receive crypto coins, but the process is inherently inefficient in terms of energy use.
Mining is a complicated business to be involved in. In the early days of Bitcoin, anyone with a reasonably powerful computer could become a miner. Now, it requires enormous computing power, the equivalent of a large data center. The business of mining is also a short-term proposition. The rewards for miners have leveled off over the years, and it is expected, for example, that Bitcoin rewards will halve in value by 2024. Add to this the wobbly nature of the crypto market, and mining doesn't seem as good a business to be involved in as it once was.
However, there is more than one way to skin a crypto cat. Proof of stake (PoS) is an alternative to proof of work that Ethereum is placing its bets on and that "Change the Code, Not the Climate" applauds. PoS uses proof of transaction, but it is the coin owners (termed 'validators') that perform this check. For proof of stake, randomly chosen validators must agree on the accuracy of a given transaction; in the Ethereum blockchain, a validator needs to own at least 32 ETH to participate. When Ethereum moves over to a PoS process, 128 random validators will be required to vouch for a transaction. This PoS mechanism removes the need for the massive amounts of computing power used in PoW.
As a side note, running a non-block-producing node does not require an ETH minimum to take part and is a recommended strategy by Ethereum to help with security and privacy.
Interestingly, Ethereum has built behavior-based penalties into its PoS mechanism. Any validator violating the rules of a PoS will be penalized by being 'slashed'; in other words, some or all staked ETH is removed from the validator. Slashing is a known phenomenon and is not necessarily proof of bad behavior; however, the protocol is believed to have failovers built-in to prevent accidental slashing.
Is everyone happy about “The Merge”?
You can never please all the people all the time, and The Merge is no exception. As a result, there have been quite a few heated debates on the issues inherent in The Merge. Duplication is one of these points, with NFTs in the crossfire.
NFTs (Non-Fungible Tokens) have become a massive success in the last few years, with many NFTs being part of the Ethereum blockchain. A worry is what will happen to NFTs after "The Merge"? The issue is that Ethereum forks such as ETHPoW will remain separate from the merged Ethereum mainnet. This has led to speculation that NFT duplicates could result from The Merge. This could lead to 'replay attacks.' A replay attack is a common crypto vulnerability during a hard fork. The fork creates two copies of a chain, and an attacker uses this scenario to develop duplicate transactions. NFT owners are concerned that this will lead to duplicate NFTs that will make ownership difficult to prove. To counteract any issues caused by potential replay attacks, NFT organizations such as OpenSea have tweeted that they will "only support Ethereum's proof-of-stake chain." post "The Merge.”
Be prepared for The Merge
The Merge is working on a soft deadline of 19th September 2022. Organizations such as “Change the Code Not the Climate" welcome this change and actively engage the wider crypto community to follow Ethereum's example.
The Merge looks set to change the underlying mechanisms involved in crypto for sound business and climate reasons. We should applaud this decision. But like any update, things can go awry. As always, with significant tech updates, the watchword is vigilance. And as Ethereum warns on the subject of "The Merge," "you should be on high alert for scams trying to take advantage of users during this transition."
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