A significant event will shortly occur in the world of FinTech, decentralised finance (DeFi), cryptocurrency, and blockchain.
‘The Merge’, in which the Ethereum blockchain switches from a proof-of-work system to one based on proof of stake, is due to happen by 19 September, after being trailed at the Blockchain Futurist Conference last month.
15 September has been suggested as a likely date, though it could be even earlier.
On whichever day it happens, the Ethereum Mainnet will merge with the Beacon chain, which will become the new consensus execution layer for the system.
The popular Ether coin, native currency of the Ethereum platform, will thus be supported by a less energy-intensive ledger than rival Bitcoin, which continues to be based on a proof-of-work blockchain.
This may put the latter under renewed pressure by associating crypto’s prime mover even more strongly with a large carbon footprint.
Ethereum explained that merging with the Beacon chain will eliminate the need for energy-intensive currency mining and thus its reduce energy consumption by over 99 percent.
The organisation added that The Merge will entail zero downtime, but will neither create a faster network nor an increase in capacity and lower ‘gas’ fees. The aim is to simply change the consensus mechanism and thus adopt a more environmentally friendly process.
The vast energy consumption of proof-of-work blockchains has long alarmed both environmentalists and sceptics of cryptocurrencies and their underlying technologies.
The current annual electricity consumption of Ethereum and the Ether coin have been estimated as roughly equivalent to that of Sweden, while according to the daily updated Cambridge Bitcoin Electricity Consumption Index (CBECI), Bitcoin’s is estimated at 96.54 TWh – nearly as much as Pakistan (103.5 TWh), and enough energy to supply all of the University of Cambridge’s needs for 705 years.
With energy prices soaring and crimes such as crypto-jacking – the stealing of processing power from unwitting users – also on the rise, slashing the cost and processing time associated with a digital token could reduce cybercrime and benefit investors, as well as the planet.
As a result, advocates say it is a critical step in establishing a truly scalable alternative finance platform.
A recent report found that crimes associated with cryptocurrencies – in many cases enabled by them – are spreading worldwide.
However, The Merge is seen as controversial by some crypto purists, who believe that proof-of-work blockchains are essential to fulfilling the promise of decentralised finance: a system that is egalitarian, self-policed, and controlled by neither powerful individuals and corporations nor national banks.
However, with nearly two-thirds of all Bitcoin mining taking place in China, prior to Beijing’s crackdown on that currency, claims of crypto’s immunity from geopolitics and power bases have long been unconvincing.
China remains the world’s second largest location for mining, despite the government’s stance.
Mega-wealthy individuals such as Tesla and SpaceX supremo Elon Musk have also been able to tweet up the value of often obscure crypto holdings via their millions of devoted followers: hardly the triumph of ‘the little guy’ that crypto’s evangelists promised.
• In related news this week, a report from Boston Consulting Group forecasts that $16.1 trillion of illiquid assets will be tokenised by 2030.