The full impact of Ethereum’s Merge

September 15 saw the completion of Ethereum’s long-anticipated transition to a proof-of-stake (PoS) model, known as The Merge, marking a monumental change for the world’s second-largest cryptocurrency. 

Ethereum previously required validation by means of a proof-of-work (PoW) consensus model. This meant that the validation of transactions was only possible through advanced calculations that demand high levels of computational power.   

The new PoS Ethereum blockchain, known as Beacon Chain or Eth2, was launched in December 2020 and has run concurrently with the original PoW blockchain until the two models recently merged into one. 

Holders of ether that want to become validators and earn rewards will need to stake 32 ETH into a smart contract as security for their conduct. This may sound like a low figure, but the value at the time of writing is $41,087. However, there are other options for budding stakers, including staking-as-a-service, pooled staking, or centralized exchanges. There is also the added benefit of escaping the heavy hardware requirements of PoW crypto mining.

One of the main criticisms of the crypto industry in recent years has been the extremely high amounts of energy that crypto mining uses in solving cryptographic puzzles. But this does not apply to the PoS model, which is much more eco-friendly. So The Merge could make Ethereum a more appealing prospect for environmentally-conscious investors, drawing interest from PoW blockchains. 

Ethereum’s website claims that The Merge has resulted in a 99.95% reduction in energy consumption for the blockchain. Ethereum co-founder, Vitalik Buterin, says this is equal to 0.2% of the world’s total energy consumption, while Digiconomist estimates it to be roughly the same as Portugal’s entire electrical energy use.

Many other leading cryptocurrencies have already moved away from the resource-intensive PoW model, either to PoS or a similar model that also avoids wasteful crypto mining. This leaves the likes of Bitcoin, Dogecoin, and Litecoin as the biggest crypto energy offenders. 

At the time of writing, Bitcoin showed a market capitalization of $388 billion, representing a market dominance of 39%. This compares with Ethereum’s market cap of $170 billion, which is currently around 17% of the total crypto market. There are no plans for Bitcoin to move to PoS, but Ethereum’s upgrade could increase the pressure on the biggest cryptocoin to go green. 

A White House report calling for the regulation of crypto mining was published only a week before The Merge. So while it’s not yet clear exactly what this means for crypto miners and PoW blockchains, it looks like Ethereum has escaped what could be just the beginning of a wider clampdown on energy-intensive blockchain practices.  

But there are still one or two clouds on Ethereum’s horizon. 

While the transition to PoS was successful in that the core systems of the blockchain continued to function, the value of Ether initially fell by 15% due to The Merge. At the time of writing, the currency has partially recovered but continues to fluctuate.  

There are also concerns that the structural changes to Ethereum are causing investors to be nervous, and to view it as a security for long-term gain rather than a liquid currency. According to a report from Wall Street Journal, SEC Chairman Gary Gensler said of ether that “the investing public is anticipating profits based on the efforts of others.”    

There have also been some misconceptions surrounding The Merge. Some people have assumed that it would eliminate the transaction (gas) fees, as these are costs incurred by the computational power of validators, but this is not the case. Another vain hope was that The Merge would speed up Ethereum processing, but no changes have been realized to this effect. 

Currently, investors are unable to withdraw their staked ETH until the Shanghai upgrade, which is expected in 6 to 12 months, but the exact date is unconfirmed. This upgrade will involve sharding, which is a process of dividing databases to spread the load. The aim of sharding is to significantly reduce gas fees. 

In a recent interview with Wired, Buterin explained that the next upgrades will address the scalability issue, enabling the network to process much more data. While transaction processing is currently limited to 20 transactions per second, it could potentially be raised to 100,000.

Seven years since its launch, Ethereum has survived the crypto bubble of 2020/2021, the subsequent crash, and now this momentous transition, so there is still reason to be optimistic.   

In other news

• Robots may be able to laugh soon. For some reason, a team of scientists is attempting to teach a robot to laugh the right way at the right time. According to The Guardian, Dr. Koji Inoue, who is leading this research with colleagues at Kyoto University, says that one of the most important elements of conversational AI is empathy, and sharing laughter with others plays a huge role in that. The robot, known as Erica, has been fed annotated dialogue that highlights solo laughter, polite laughter, and mirthful laughter. From this, Erica’s machine learning system was taught when and how to laugh. Cool, that sounds terrifying. 

• Over 50 million Indians geotagged their homes. Digital rights advocates are concerned by an Independence Day celebration campaign in India that appears to be a scheme to collect vast amounts of citizens’ data. Rest of World reports that the campaign, spearheaded by India’s ruling party Bharatiya Janata Party, is called the Har Ghar Tiranga (tricolor on every house) program. It aims to have every citizen put up an Indian tricolor flag at their home, take a picture, and upload it on a specific website that geotags their home locations and phone numbers. Srinivas Kodali, a researcher with the Free Software Movement of India, has said that no country has ever implemented geotagging of citizens on this scale before. Kodali is concerned that this information could lead to theft, hacking, stalking, and targeting of citizens based on their political beliefs.

• Working hoverbike revealed at Detroit Auto Show. Have you been waiting your whole life to travel by hoverbike like the stormtroopers in Return of the Jedi? Well, soon you can — if you have $777,000 to spare. According to The Register, the company behind the bike, XTURISMO, is a Japanese startup called AERWINS Technologies. XTURISMO does have limitations. For one thing, it runs on drone technology, so right now, it can only be driven by remote control. It isn’t certified for road use, so you can only use it in safe spaces like open fields. The good news is AERWINS Technologies is planning to release a smaller, $50,000 electric model by 2025.

• Shutterstock and Getty are banning AI images. Although AI image generators like DALL-E and Stable Diffusion are a lot of fun and can sometimes even win art competitions, the copyright implications remain unclear. According to Vice, this copyright issue has become even more problematic since some AI artists have started selling their work on stock photo websites. So it’s unsurprising that Shutterstock and Getty have begun removing these images amid concerns about how these AI systems function, potentially ripping off the work of living artists.

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