The much-anticipated “Merge” to a far more energy-efficient method of minting new coins has been completed, according to Ethereum co-founder Vitalik Buterin. Ether coins will no longer be created through “proof-of-work,” which involves the use of powerful computers to solve cryptographic tasks. Instead, they’ll be built using “proof-of-stake” methods, which require users known as validators to stake coins in exchange for the opportunity to approve transactions and earn a small reward.
Until now, mining Ethereum required massive amounts of computing power to solve difficult math problems. This not only used a lot of energy, but it also made Ethereum difficult to scale and expensive for small transactions. It also concentrated power in the hands of a few, which is antithetical to the crypto decentralization ethos.
The more a validator stakes in the new system, the greater the chance of winning a reward. But everyone gets something because all staked ether earns interest (around 5.2 percent), making it more similar to purchasing a bond or depositing it in a bank (apart from the wild market volatility, of course). The minimum stake amount required to be a validator is 32 ether (approximately $50,000 right now), but individuals can meet that level through pooled staking with trusted third-party validators.
The Merge got its name because the Ethereum blockchain merged with a parallel network that has now been running in a proof-of-stake test for almost two years, but it is only one step in the transformation. “We still need to scale, we need to fix privacy, and to me, the Merge represents the difference between an early stage Ethereum and the Ethereum we’ve always wanted,” Buterin said at the Merge party, which was livestreamed.
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Ether began the day higher, but has since fallen a few percent from yesterday. It remains to be seen whether the Merge will deliver on its promise of transforming crypto, as there are still many unanswered questions regarding regulation, Ethereum forks, and other issues. There is also the risk of scams (as is common in crypto), such as transactions from the old chain being copied to the new one.