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Ethereum Merge is Crypto Sector's Saving Grace Amid Biting Global Energy Crisis

Ethereum Merge is Crypto Sector's Saving Grace Amid Biting Global Energy Crisis

Last updated 30th Nov 2022
Disclosure
  • The globe is in the middle of a biting energy crisis.
  • The crypto sector isn't immune to the rising energy prices.
  • But amidst this crisis, the Ethereum Merge could be the crypto sector's saving grace.

While the world focuses on the Ukraine crisis, another crisis has been brewing behind the scenes. The Russian incursion into Ukraine has precipitated a global energy crisis. And as Russia is a major supplier of natural gas and oil, the instability in Ukraine has put a strain on global supply. Consequently, energy prices have skyrocketed, and there are concerns that the situation could escalate further.

According to a BanklessTimes analysis, this energy crisis is also putting a lot of strain on the crypto industry. Crypto mining is an energy-intensive process, and with energy prices rising, it's becoming more and more challenging to turn a profit. That's forcing miners to scale back their operations or even shut down completely, which could have a dire effect on the crypto market.

There could be a way out of this bind; the Ethereum merge. The crypto world is waiting in anticipation of its imminent rollout. This long-awaited event will see Ethereum 2.0 come into existence, bringing with it a host of new features and improvements.
Jonathon Merry, CEO of BanklessTimes.com

What's the Merge all About?

The upgrade will see the Ethereum blockchain ditch the proof-of-work (PoW) consensus for a proof-of-stake (PoS) mechanism. This change is designed to address some of the key criticisms of the Ethereum network, lack of scalability and high energy consumption. Thus the update will improve the blockchain's performance.

Mining is the process of verifying transactions on the Ethereum blockchain and earning rewards for that service. The miners earn compensation in ETH, the platform's native cryptocurrency, for verifying and committing transactions to the blockchain.

The Ethereum network currently uses the Proof-of-Work (PoW) consensus algorithm, which requires miners to compete against each other to solve cryptic mathematical problems to validate new blocks of transactions and earn rewards.

Why Proof-of-Stake?

While PoW has been successful in securing the Ethereum network so far, it is not without its drawbacks. The biggest downside of PoW is that it requires significant energy and hardware resources, which has led to high emissions and waste production.

The misgivings about the PoW led Ethereum to plan a shift to the PoS consensus mechanism. The latter relies on nodes to prove that they own a certain amount of the currency to be able to validate transactions and create new blocks. In contrast, proof-of-work (PoW) requires miners to solve complex cryptographic puzzles to add new blocks to the blockchain.

Ethereum Merge Has Been a Long Time Coming

Ethereum's plans to shift from a proof-of-work (PoW) consensus algorithm to a proof-of-stake (PoS) algorithm have been in the works for some time. The foundation has now announced that the long-awaited Ethereum merge is finally happening. This shift is expected to cut the network's energy use by more than 99 percent. That's significant given the current climate of rising energy costs and concerns about climate change.

In addition, PoS is more secure and efficient than PoW. With PoS, miners do not need miners, so there is no risk of centralization. In addition, because validation is based on ownership instead of computing power, transaction speeds are much faster with PoS.

Gas Fees and Scalability

Moreover, thanks to the imminent switch to PoS, Ethereum's high gas fees could soon be a thing of the past. Under the current PoW mechanism, miners earn rewards for verifying transactions on the network. This system is relatively secure but has a significant drawback: Ethereum can handle only a limited amount of activity at any given time. This results in high fees for users during peak periods of demand.

By switching to PoS, where users stake their Ether tokens in exchange for the right to validate transactions, Ethereum will be able to process far more transactions without putting upward pressure on fees. The switch to proof of stake will not only make Ethereum more affordable to use, but it will also make it more scalable in the long run.

Nellius Mukuhi

Nellius Mukuhi

Nellius is a cryptocurrency investor and journalist who has been in the nascent space since 2018. She is a seasoned writer who loves to travel and focuses on delivering relevant, valuable content for audiences.