Vitalik Buterin, Ethereum’s creator, was heavily inspired by Bitcoin’s white paper when creating the second-most popular cryptocurrency and blockchain on the market. Among several similarities, Ethereum used the exact consensus mechanism as Bitcoin, proof of work, which was a leader in the market a few years ago.
However, as the blockchain evolved and more users became interested in what Ethereum offered, the network became too congested to support the massive transaction volume. Therefore, gas fees boomed, and the blockchain was slow, affecting its performance. Even the price of Ethereum was affected as investors were looking for faster and cheaper alternatives like Solana or Cardano.
The solution was to switch the now-old consensus mechanism and proof of stake. The update was called the Merge and was one of the most significant changes made to a blockchain. It caused transaction volumes to spike, so the only Ethereum price prediction at that time was optimistic.
However, the upgrade did more than change Ethereum ━ it impacted the entire industry. Here’s how.
What did the transition mean for Ethereum?
After dealing with the constant challenges of network congestion, Ethereum switched to the more sustainable consensus technology, proof of work, making the network greener by 99%.
The system is based on validators chosen to create blocks and confirm transactions while staking their Ether as collateral. Therefore, they don’t need expensive computational power to solve complex mathematical problems, making cryptocurrency one of the most energy-efficient.
At the same time, staking is beneficial because it ensures a predictable block time of 12 seconds, whereas PoW had a fluctuating rate that made it less scalable. On the other hand, since Ether experienced a lower issuance, there’s less inflation on the network, increasing the coin’s value.
The Merge did more than that
The Merge update was executed in 2022, adopting the Beacon Chain as a consensus layer for the Mainnet. Since then, validators have secured it by staking ETH to participate in the consensus.
While this brought sustainability for Ethereum, the benefits extend to the entire cryptocurrency ecosystem. That’s because dApps running on the blockchain are also green now, including major metaverse platforms like Decentraland. We can also consider the apps and systems of famous companies like EY that leveraged decentralization to pave the road for the future.
The organization operates on Ethereum’s Polygon for its metaverse projects, diminishing its CO2 contribution to the environment. Many others followed EY’s example, so we can say that the upgrade helps mitigate climate change by making technology more sustainable.
Ethereum became the industry’s hot spot
After the Merge, Ethereum continued improving the network, which was only the beginning of a long road to success. The Merge is the first update of the roadmap, with more to follow in the future. So, since Ethereum is full of pleasant surprises, it caught the eye of potential investors and governments, reaching new highs ━in ETFs.
Exchange-traded funds were initially approved only for Bitcoin, but Ethereum ones followed closely, bringing more liquidity and value within the ecosystem. ETH ETFs add diversification and regulatory oversight to the network, which was needed considering the industry’s challenges with the SEC.
Investors are also excited about what’s to come after further updates are launched, especially since Bitcoin is close to becoming legal tender. As we know, Ethereum tends to follow Bitcoin’s path as the second-largest cryptocurrency on the network.
What follows the Merge?
The Ethereum roadmap has several objectives, such as making transactions cheaper or enhancing network security. The updates included will slowly but steadily address them all for about five to ten years.
For instance, the Merge was created to address sustainability and scalability, but the following updates will deal with:
- Rollups and Data sharding (the Surge);
- Censorship resistance and protocol risks (the Scourge);
- Block verification (the Verge);
- Computational costs of running nodes (the Purge);
- Less important upgrades (the Splurge);
Vitalik Buterin, Ethereum’s creator, frequently updates followers about the roadmap on his social media platforms. This might be one of the reasons many investors choose Ethereum instead of Bitcoin: There’s someone reliable behind it. In comparison, Bitcoin’s creator is still anonymous.
Still, Ethereum staking is controversial
Ethereum staking is indeed revolutionary, but that doesn’t make it perfect. There are many issues with it, including risks of centralization. Beyond high rewards, network support, and market exposure, ETH staking has a high entry barrier because every user needs to have at least 32 ETH to begin staking. Considering how high Ethereum has risen in the past years, this considerable investment is a massive challenge for beginners.
On the other hand, the moment investors stake their Ethereum, they cannot use them. This leads to limited liquidity, adding up to the technical complexity of becoming a validator node.
Finally, the validator selection is sometimes deficient, which can cause problems to the network due to the lack of diversification. This issue can expose the network to security troubles as it can act maliciously.
Ethereum is one of the best blockchains
Despite numerous challenges, Ethereum killers are still behind the blockchain, as it revolutionized the market with its tools for developers. Anyone can create anything with smart contracts, from dApps and DAOs to NFTs and metaverse games. The varied ecosystem is what makes Ethereum unique and worth the investment.
Ethereum cannot be compared with Bitcoin as they have different market purposes. While Bitcoin is an important store of value that will eventually become legal tender, Ethereum offers its cryptocurrency for transactions within the blockchain, pushing forward for the Web3 moment. The blockchain is also useful for real-world systems and websites as it brings decentralization and transparency.
What’s the future of staking?
Ethereum staking is one of the greatest improvements in the blockchain as it switched from the old PoW to PoS without much hassle. The update made Ethereum sustainable by 99%, influencing its dApps to become greener. Staking requires no computational power to safeguard the network and attracts liquidity. Still, there are issues with the entry fee and the necessary technical knowledge to manage it, so there’s still some time left to be approachable for everyone.
