You may have seen the Ethereum token, known as ether or ETH, rally as of late.
One big reason for this rally? The upcoming Ethereum merge.
What is the Ethereum (ETH) merge?
The ETH merge refers to developers changing Ethereum’s consensus mechanism, the process the blockchain uses to ensure every transaction and new block added on the network is valid. Ethereum will move from an energy-intensive proof-of-work consensus mechanism to a more energy-efficient proof-of-stake one.
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What is the difference between proof-of-work and proof-of-stake?
Proof-of-work and proof-of-stake are the two major consensus mechanisms that cryptocurrencies use to validate transactions on the blockchain.
Proof of work blockchains are verified by miners (networks of computers that help with the creation of new bitcoin).
Miners use large amounts of computer processing power in a race to solve a mathematical puzzle. As a result, the miner who solves the puzzle the quickest earns cryptocurrency as a reward, and newly verified transactions get added to the blockchain.
Alternatively, proof of stake blockchains have a network of “validators” who “stake” (put up) their own crypto to verify transactions and add them to the blockchain.
Instead of the block rewards received by proof of work miners, stakers earn a share of fees for transactions. As opposed to contributing vast amounts of computer processing power, validators stake their crypto.
What impact will moving to proof-of-stake have?
The merge to proof-of-stake will reduce Ethereum’s energy consumption by approximately 99.95%. The merge will make Ethereum more efficient and scalable.
It will also mean more competition for the project as many Ethereum competitors run on proof of stake technology.
What impact will the merge have on price?
While it’s impossible to tell the future, one effect of the merge should be to make Ethereum more cost effective. This may attract users to the ecosystem.