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September 7, 2022

What The Ethereum Merge Means For Bitcoin

Vitalik Buterin, the inventor of Ethereum, said on Tuesday that the Ethereum merge is expected to occur “around” September 13 to September 15. The second-largest cryptocurrency will abandon its energy-intensive proof-of-work consensus process at that time.

How will this change affect Bitcoin, which still dominates the cryptocurrency market and employs proof of work?

The merging is just the most recent Ethereum blockchain update aimed at establishing a trustworthy decentralized financial environment for the future. In addition to addressing energy problems, the transition to proof of stake offers further advantages.

In proof of stake, validators that have invested a number of their tokens verify block transactions. The more the number of tokens a person has connected with the blockchain, the greater the likelihood that they will be randomly selected as a network validator.

Unlike proof of work, which requires computers to solve mathematical methods to mine tokens, this method does not rely on computers to solve mathematical algorithms. As more tokens enter circulation, the difficulty of mining tokens grows, necessitating more energy to do the necessary computations.

This is a key critique of proof of work, which will remain the foundation of Bitcoin mining after Ethereum abandons the method. Beyond the energy problem, and in addition to the recent meltdowns of crypto lenders, the crypto business as a whole faces a wide range of macroeconomic issues, including political tensions, high inflation rates, and hawkish national monetary policies. The latest bear market is attributed to these macro reasons.

As the volatility of leading cryptocurrencies continues to concern institutional investors, they may become more skeptical of Bitcoin’s fundamentals, and Ethereum’s network upgrades, which are intended to position its ecosystem as the future currency, may place even more pressure on Bitcoin’s usability.

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Vitalik Buterin stated his worries about Bitcoin’s proof-of-work issuance methodology in a conversation with journalist Noah Smith last week regarding security, governance, and consensus mechanism models.

A consensus system that wastefully consumes enormous quantities of power is not only detrimental to the environment but also necessitates the annual issuance of hundreds of thousands of BTC or ETH, he stated.