Ethereum merge investing
This means that Ethereum users will need to make a pretty hefty investment upfront in order to authenticate transactions. However, this model is expected to be much less energy intensive. How will this affect investors and potential investors?
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The issue with PoW is that it has become very energy-intensive undertaking. According to the European Central Bank, the energy consumption involved in crypto mining equates to the same energy expenditure as the years' energy consumption of countries like Spain, the Netherlands and Austria.
Researchers suggest that Ethereum's carbon footprint alone is comparable to the entire energy use of Finland in a given year. In a PoS system, the onus of verifying transactions and achieving consensus moves from computer processing power to individuals 'staking' or depositing their ETH.
Staking refers to when a user agrees to lock up an amount of cryptocurrency in exchange to validate new blocks of information added to the Ethereum blockchain. By staking their ETH, individuals pledge their funds to a smart contract and so gain access to a digital lottery.
Each time a transaction occurs, a participant who has staked ETH is chosen at random to verify the transaction. Cryptocurrency investments have opened the floodgates to a new demographic of investors and created a new paradigm of digital market opportunities.
But these markets have shown themselves to be quite volatile and risky.
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Each investor is tasked with developing their own risk profile and leverage that against their thesis. One thing is for sure, Ethereum represents a new age of digital ownership and empowering one of the most critical blockchains out there. In contrast, the proof-of-stake process requires comparatively little energy.
What is Ethereum? Launched in by Vitalik Buterin, Gavin Wood, Charles Hoskinson, Anthony Di Iorio and Joseph Lubin, Ethereum's founding team has comprised of some of crypto's biggest names. To put it simply, Ethereum is trying to be the blockchain equivalent of Apple's app store.
The merge brought the Ethereum mainnet together with the Beacon Chain, a proof-of-stake version of Ethereum had already been running for over a year. This update means Ethereum now runs more efficiently.
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How will the Ethereum merge affect Bitcoin? Tapscott told INN it's possible that not everyone operating under the current Ethereum blockchain will go along with the merge.
He pointed to the variances of Bitcoin, Bitcoin Cash and Bitcoin SV as prime examples of this effect. Both Tapscott and the report from Purpose Investments downplay the possibility of a fork, indicating that even if there is a divergence, proof-of-work would represent a low total market cap within Ethereum. Of course, the merge itself will also have to happen smoothly.
Soloway told INN it will be critical for the transition to go well so as not to damage the image of cryptocurrencies. This critical event will act as proof that these networks are able to adjust on the fly while supporting their various partners and applications, Tapscott said.
Ethereum started with a Proof of Work consensus mechanism. Inthe network split into two forks: one still using Proof of Work, the other using a process known as Proof of Stake. When the merge happens, Ethereum will use the Proof of Stake consensus mechanism only.
Proof of Work On a blockchain using Proof of Work as a consensus mechanism, members of the network compete for the chance to be the one chosen to add their copy of transactions to the ledger.
They do this by guessing a long string of letters and numbers out of trillions of possible combinations.