The Merge Is Coming

It is September, 2022 and a major change in the world of cryptocurrencies and blockchains is happening. The?Ethereum?blockchain is merging with the Beacon Chain.

Yes, it is a big?deal and here is why.

In order for cryptocurrencies and blockchain to achieve mainstream status and be used in our daily lives, one thing was missing: scalability.

Until now, blockchain technology could process only a very limited number of transactions at any given moment. To put it in perspective, Bitcoin processes about 5 transactions per second (TPS). Ethereum did 3 TPS. Meanwhile, VISA does around 1,700 transactions per second on average (based on a?calculation derived from the official claim?of over 150 million transactions per day).

As you can imagine, that is a major drawback to blockchain technology. After the Merge (as it is called) the Ethereum blockchain will be able to process 100,000 transactions per second (TPS), compared to the 3 TPS we mentioned before. That’s according to the?Ethereum Blockchain’s co-founder?and main developer, Vitalik Buterin.

How can they achieve that?

They’re changing up how we will process transactions on the blockchain. There are two distinct methods of processing transactions -?Proof-of-Work (PoW) and Proof-of-Stake (PoS). One difference here is the amount of time and (computing) resources required. The other difference is the way the new blocks are generated. During the Proof-of-Work method, you have to solve a math problem which requires many specialized computers. You might have heard about mining farms which are consuming a significant amount of energy. That’s why.

Alternatively, the Proof-of-Stake is a type of consensus algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus.

This Merge has been in works for some time. In 2020, the Beacon Chain was created (Phase 0) and since then the preparation work has been underway. After the Merge (Phase 1), the work will continue to create multiple shared chains (Phase 2) to achieve high scalability.

There are however some disadvantages associated with Proof-of-Stake systems. One issue is that since block validators are chosen randomly from those holding stakes, if someone owns a large percentage of all tokens then they have a greater chance – although not guaranteed –?of being selected as a block validator. While this does not give them complete control over the network like in a?51% attack scenario, it could lead to centralization if allowed unchecked.

To any of you who own Ether, this transition should be completely seamless and no action is required. All the major exchanges agreed to stop processing any transactions during the Merge. Let's hope things work well.

As of writing this, the market cap of Ether is $210 billion, which would be about the GDP of Greece. It is a far cry from its highest market capitalization of $571.67 billion on November 9, 2021, but with better scalability and higher usage it has a very good chance to become a useful technology to conduct business. A new pattern is in the making.