The significance of Ethereum’s Merge for the future of cryptocurrencies

Subject : Environment

Context–

The Ethereum blockchain is fully transitioned to a new way of processing transactions.
The switch enable efficient energy consumption.
Developers say the transition to what is called a ‘proof-of-stake’ consensus mechanism will cut Ethereum’s energy consumption by 99.95%.

What is Ethereum?

Ethereum, was co-founded by VitalikButerin.
It is one of the most used platforms by developers to build decentralised apps (dApps), smart contracts, and even crypto tokens.
The platform’s currency, Ether is only second to Bitcoin (BTC) in terms of market capitalisation.

Environmental concerns of mining cryptocurrency–

The change in the way Ethereum builds the blockchain comes with not just environmental consequences, but also major cyber and financial security implications.
Decentralised transactions are processed on blockchains using consensus mechanisms. Ethereum’s former method, ‘proof-of-work’, which is also used by Bitcoin, needs powerful mining hardware that consumes a lot of electricity and generates enormous amounts of heat.
This energy is then used to process extremely difficult mathematical puzzles, the solution of which would let new transactions be added to the blockchain so as to reward the miners with crypto.
Many environmentalists, policymakers, and regulators have strongly criticised the impact of Bitcoin mining on local communities.
Common centres for mining included China (before a near-total crypto ban), the U.S., Russia, and Kazakhstan — countries with cheap electricity rates and colder climates.
Ethereum’s website admitted that their crypto’s total annualised power consumption nearly matches that of Finland while its carbon footprint is comparable to Switzerland.
For some time, European countries even mulled a crypto mining ban, while China actually carried out a nationwide crackdown on crypto miners, sending them fleeing Overseas.

Consequences of crypto mining–

Some Bitcoin supporters go so far as to say that miners’ activities, though harmful to the environment now, will help bring about an energy revolution and the faster adoption of solar, wind, gas, and nuclear energy.
However, the consequences of crypto mining across the globe have included mass electricity blackouts, fire accidents, overburdened grids, struggles between locals and crypto miners for more control over the energy supply, and even crypto mining on indigenous land.

Need for a new mechanism–

Probably as a response to the backlash, Ethereum has decided to switch to a ‘proof-of-stake’ consensus mechanism, where Ether owners will stake their own coins in order to serve as collateral and help process new blockchain transactions, in return for rewards.
Crypto experts are divided as to which consensus mechanism offers better protection from hackers.
Theoretically, there are ways to hack both verification methods. But Ethereum claims the proof-of-stake consensus mechanism offers better security.

Which other cryptocurrencies are changing to proof-of-stake now?

For now, no other top coin is planning an Ethereum-style Merge.
After Bitcoin, Dogecoin [DOGE] is the largest proof-of-work-based cryptocurrency.
After that comes Ethereum Classic [ETC], formerly part of Ethereum before a community schism.

Way Forward–

This is an important day for crypto trackers as Ethereum’s Merge event, as it is known, could change the nature of crypto and Web3.0 itself.
Ethereum Classic has made it clear that it is loyal to the proof-of-work mechanism.
It has invited miners to mine ETC and has said that stakers are free to choose ETH2. Both chains co-exist in their own right providing options for stakers and miners.
Traders are also watching the markets and charts to see if other proof-of-work coins experience a price lift from new investors who don’t want to support a proof-of-stake Ethereum.