Welcome to this edition of Bitrue Live. Anchit Goel, Senior Director at Bitrue and our resident Ethereum expert has very kindly agreed to join for this short AMA session today to help us understand more about the merge, why it’s happening, what we can expect in the future
Can you give us some background information about the Ethereum Merge?
So, I think anybody who is involved in cryptocurrencies is going to be at least loosely familiar with Ethereum already, it’s one of the oldest currencies ever created and as such some of its systems and functions are not up to the standards that we expect, or hope to see, from modern currencies in 2022. Luckily, the Ethereum development team is very active and they have this huge roadmap extending far into the future that will do things like improve the efficiency and the functionality of the Ethereum chain. This Merge upgrade is just one step on that roadmap, but it’s a pretty big one, mostly because of the change in consensus mechanism used by the chain. The original version of Ethereum uses Proof of Work consensus, the same as Bitcoin, which is all about using expensive computer hardware to mine for coins. After this upgrade, Ethereum will switch to a Proof of Stake mechanism, which doesn’t require expensive hardware and will no longer require huge amounts of energy to keep the network growing.
On a technical level, what we’re going to see is the adoption of the beacon chain into the Ethereum main chain.The beacon chain can be thought of as essentially a testnet that has been running alongside Ethereum for the last two years or so, the developers have been spending this time tweaking the beacon chain to make sure it’s efficient and secure. The reason this upgrade is called the Merge is because it’s going to fuse together the beacon chain with the existing mainnet, which will swap the consensus mechanism while retaining the full history of the existing chain, so there won’t be any disruption to any existing ETH holdings.
Can you tell us more about the benefits of the Merge?
There are actually many benefits that will manifest over time but the main benefit is related to efficiency. If we’re talking purely in terms of transactions there will be a minor improvement to throughput as blocks on the chain will be created about 10% faster, but most importantly, like I said just a moment ago, the actual energy cost of creating these blocks is going to be significantly reduced. It’s estimated that Ethereum will drop its energy consumption by around 99.95% after this upgrade. That’s huge! I’m sure that regardless of where you are in the world right now, energy costs are starting to become a big headline issue, right? So this reduction is a massive improvement and will make Ethereum much more environmentally friendly.
There are also some more subtle improvements which will help bolster the long-term health of the network. For example, we can expect the network to become more decentralized over time, because the hardware requirements for node operators will drop considerably. Why is this important? Well, decentralization is one of the fundamental ideological tenets of cryptocurrency, it’s all about democratizing financial power and taking it away from central authorities. So it means that there can be greater trust in the network, and it should theoretically increase the security of the network as well.
Finally, an interesting aspect of this upgrade is that it’s likely to turn Ethereum into a deflationary asset, because the issuance rate will go down to a rate that is below the burn rate. This is really interesting because it means that holders should benefit over time simply by holding on to their ETH and doing nothing with it. The total supply will drop making the existing ETH rarer and more valuable. Of course, even if you’re not selling or transacting your ETH holdings you can still find additional ways to earn money from it as well, such as with the various staking programs on Bitrue.
Will ETH become more valuable now that the Merge has been completed?
It’s impossible for me to say, and I wouldn’t want to give any investment advice here. All I will say is that the benefits mentioned above are likely to help grow the entire cryptocurrency ecosystem. Right now one of the biggest criticisms about cryptocurrencies that I see from ordinary investors or mainstream media articles is about the environmental impact. After this upgrade though, that will no longer be a valid criticism of the industry, it can only be a criticism of Bitcoin as that will be the only major coin still using the Proof of Work consensus mechanism.
It’s also important to remember that this is just one step on their roadmap, future upgrades are going to do things like improve the sharding capability of the network, which in simple terms is going to make it more efficient and attractive for developers to build smart contracts on, and if there are more developers coming into the ecosystem and building great things on it, it stands to reason that interest in Ethereum, working as the foundational layer of all these smart contracts, will receive greater interest.
I’ve heard that there might be a hard fork happening as a result of this upgrade. Can you tell us more about this hard fork and what the implications would be?
So this is a very interesting situation. Despite the benefits of the merge upgrade, there are some people who are actually not in support of it. These people want the Proof of Work chain to either keep going as the main chain, or for the Ethereum chain to split into two at the time of the upgrade. This is mainly because some people have invested a lot of time, money, and effort into establishing mining businesses to generate Ethereum for themselves. If Ethereum moves to Proof of Stake, all of this equipment that they have bought and kept running becomes useless, right? So this collection of influential community members are planning on creating this Proof of Work fork, so after the merge there will essentially be two types of Ethereum, the official version and the forked version, which will go by a different name.
The forked version will not be supported by the Ethereum Foundation, who are the developers of the main Ethereum chain, so it will not receive any further official updates or maintenance or anything like that.
Two types of Ethereum might be pretty confusing. Is there anything users need to do to prepare for this?
First of all, it’s not guaranteed that a hard fork will happen. It’s very likely at this point, but it’s not 100% guaranteed. At Bitrue we’ve had a swap page open for the last month or so. Basically, we’ve been allowing users to claim both the official Proof of Stake Ethereum in advance, as well as the hypothetical Proof of Work Ethereum that may exist. We’ve strongly encouraged our users to claim these because it is essentially free money — if the Proof of Work chain takes off then it’s extra money for you, if it doesn’t then you haven’t lost anything. We’ve also allowed users to trade these tokens in advance on USDT pairs so even if you don’t care about the fork, you can claim the tokens and then sell them immediately. Depending on what happens with regards to this fork, the swap and trading services will be changing in the future, you can find full details about this on our helpdesk at bitrue.com
Why has Bitrue decided to support the Proof of Work fork?
Yes, so, this fork is actually really quite controversial in the industry right now. I want to be clear that at Bitrue we don’t actually support the fork, we’re neutral on it. It’s our philosophy that we don’t want to be the gatekeepers of the assets that our users can invest in. That’s why we list so many coins week by week, it’s all about giving users the choice to invest in what they think is valuable, because we believe that our users are grown adults who should have that freedom of choice. We know that there are many people out there who are interested in the Proof of Work coin, for a variety of reasons, so we’ll let them claim these tokens and they can do whatever they want with them. We also feel like it would be doing a disservice to our users if we didn’t offer them the opportunity to claim these tokens. The coins rightfully belong to them regardless of their value or utility, so we have this moral obligation to make sure that users get access to them.
What do our users need to know for the future?
I would encourage everybody to keep an eye on crypto news sources for the latest updates, keep an eye on the @BitrueOfficial Twitter account because we’ll also be posting updates as we learn more about them. If you’re very daring you can also keep an eye on the price of the various Ethereum tokens during this time, I would expect there to be a decent amount of volatility on them which means if you have the right trading strategy now could be a good time to earn some profit. I’d also encourage people to go to the official website for Ethereum, ethereum.org, because they’ve put out a whole lot of great articles which explain the merge upgrade in incredible detail and everyone could learn a lot from them. I always believe it’s vitally important for everyone in this space to learn how to do their own research and deeply understand what’s happening in this industry. It really is the best way to find the best projects to invest in.
Alright, this has been fascinating and we would like to thank you to all participants who joined in this AMA sessions
Thank you everybody, and we’ll see you next time!