Crypto’s most important commercial highway, Ethereum, just got repaved.
The blockchain network completed the crypto world’s biggest and most ambitious software upgrade to date, according to its co-founder Vitalik Buterin in a Twitter post Thursday.
And we finalized!
Happy merge all. This is a big moment for the Ethereum ecosystem. Everyone who helped make the merge happen should feel very proud today.
— vitalik.eth (@VitalikButerin) September 15, 2022
Called the Merge, it replaced power-hungry computers that were used to order transactions on the network with a more energy-efficient setup using piles of the network’s native token, Ether, placed in special, so-called staking wallets. As a result, Ethereum’s energy consumption will decline by an estimated 99 per cent.
Such an upheaval has never been attempted in crypto before, let alone on Ethereum, home to about 3,500 active decentralised apps, ranging from exchanges to games and handling billions of dollars worth of crypto. In the works for years, the Merge doesn’t change the end-user experience on Ethereum, but it’s a key stepping stone to more upgrades that will make the network faster and cheaper, and should further increase its stature and usage.
The Merge also changed properties of Ether, making it more akin to yield-bearing securities. Staked Ether will generate a return, expected to be around 5.2 per cent after the Merge, according to tracker Staking Rewards. Coupled with an expected net decrease in Ether token supply soon after the update, that should make the coin more attractive to investors.
Ether surged more than fivefold in 2021, outperforming Bitcoin by a wide margin, in part on optimism over the Merge. Both tokens have struggled since hitting record highs in November, with Ether down more than 50 per cent this year.
The software upgrade is called the Merge because the existing Ethereum blockchain will combine with a parallel network that’s been running for almost two years to test the proof-of-stake concept. Overall, the upgrade has been under consideration for over seven years.
Even though completed, the Merge could be followed by days or even weeks of hiccups, based on what happened after some prior Ethereum software updates. Worried about bugs and hacks, crypto exchanges like Coinbase Global paused Ethereum-related withdrawals and deposits around the time of the software upgrade. Crypto lender Aave had suspended Ether borrowing in advance of the Merge.
Adding to the concern is the likely creation of copies of Ethereum that still use power-hungry computers called miners. These forks, such as EthereumPOW, create their own copies of Ether coins given to all holders of mainstream Ether. The tokens may have some value. But the existence of several versions of Ether – each running on a different chain – could create confusion and give rise to attacks and scams. So can copies of other tokens running on forked chains.
While all apps and wallets currently on Ethereum have been replicated on the forked chains, most apps are likely to be broken, as key players – USDC stablecoin issuer Circle and oracle provider Chainlink among them – have said they won’t support the forked versions. Whether the forked chains can stay viable in the long run remains to be seen.
Large teams of Ethereum developers from all over the world have worked on the Merge for years. In late 2020, they debuted Beacon Chain, a parallel network that was testing the ordering transactions via staked coins, or a system called proof of stake. In the Merge, Beacon was merged with the main Ethereum network, using miners, and made Beacon Ethereum’s way of testing the ordering of network transactions.