The Ethereum Merge Could Make Crypto Suck Less
The Ethereum Merge Could Make Crypto Suck Less
6:38

The Ethereum Merge Could Make Crypto Suck Less

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Speaker 1: We know that people have a lot of opinions about cryptocurrency. For some cryptocurrency is relatively secure with lots of accessibility features and low transaction cost. On the other hand, it is notoriously unstable. It's also pretty bad for the environment, using an excessive energy to mine digital currency. But one crypto company is attempting to at least alter its environmental impact. In September, 2022, [00:00:30] Ethereum, the blockchain that enabled the rise of NFTs launched one of the most closely watched experiments in the crypto world. Let's call it the merge. Ethereum merged with a beacon chain proof of stake system, effectively ending its use of proof of work. The original blockchain pioneered by Bitcoin. If successful, the transition will reduce Ethereum's carbon emissions by nearly 99%. [00:01:00] According to the Ethereum Foundation at stake is $183 billion worth of Ether. So it's a pretty big gamble. If this all sounds complicated to you, that's because it is to understand the merge. Let's first break down the roles of cryptocurrency and cryptocurrency minors. Speaker 1: Cryptocurrencies are assets created by blockchains. Crypto enthusiasts [00:01:30] say they're valuable because they're decentralized. That means unlike the US dollar, they're not controlled by essential organizations or the government like the Fed. Under the proof of work system, cryptocurrencies are created or mined by computers competing against each other to solve complex cryptographic problems. If your computer unscrambles the puzzle first, congratulations. You win the right to mine a block that is adding data to the blockchain. For every block verified [00:02:00] Bitcoin miners receive six Bitcoin, roughly $129,000. Ethereum miners earn two ether about $2,400. Miners also earn the gas fees paid on each transaction. Since proof of Work is a race to solve a complex puzzle, first, cryptocurrency miners try to out gun each other with computer power. This makes mining extremely energy intensive. So investing in cryptocurrencies that use proof of work comes at a high environmental cost. Speaker 1: Still [00:02:30] with me on this? Okay, good. Let's talk about proof of stake and why it's a more environmentally friendly system. For Ether. Proof of stake removes cryptographic puzzles all together users who validate transactions, stake or deposit ether in order to win the right to record new transaction data on the blockchains. In other words, Ethereum's Merge doesn't change the process of producing or validating blocks. What does change is the mechanism that selects mins [00:03:00] and validators before the merge. Both groups needed computer power to solve puzzles and win the right to mine or validate. Now they're essentially playing a lottery with their Ether tokens. Speaker 1: So what's at stake with the mer? Glad you asked, because switching to a more sustainable and secure consensus mechanism may have ripple effects beyond Ethereum. Let me give you an example. According to dig economists, [00:03:30] before the merge, a single Ethereum transaction required power equivalent to what the average US household consumes over six and a half dates. Ethereum's total energy consumption stands at about 78 terawatt hours per year. That stat is on par with a power consumption of Chile, which is wild to think about. Even more alarming, the blockchain's carbon emissions were comparable to the emission levels in Hong Kong. It's only been [00:04:00] a month, so we don't have the data yet, but the merge is predicted to reduce Ethereum's energy consumption and carbon footprint by 99%. The merge could also impact the whole Ethereum ecosystem. Critics of the transition question, If proof of stake is as secure proof of work, proof of work may be bad for the environment, but it does allow the blockchain to be decentralized and secure at the same time. Speaker 1: Two things that keep hackers [00:04:30] at bay. A bad actor needs to control 51% of the network's power to have enough electricity to overtake Ethereum and run a successful mining operation. A stunt like that would cost billions of dollars. Crypto enthusiasts in favor of the merge argue the proof of stake offers more security than proof of work by taking out the middleman. Imagine each ether token is a lottery ticket. If your token number is called, you win the right to verify the next block. So [00:05:00] the more ether that's deposited, the more secure Ethereum's blockchain will be. Speaker 1: It's an understatement to say the merge is polarizing. The crypto world in August of 2022, news of the mergers September launch date sent Ethereum passed $2,000 for the first time since May, but Ethereum's price actually dropped to below $1,400 in October. However, many crypto enthusiasts predict ether's price will bounce back. [00:05:30] The first reason is environmental. By reducing its carbon footprint, Ethereum makes it easier for big companies to both invest in Ether and create Ethereum applications theoretically driving the value of Ethereum up. The second is technical mining. Cryptocurrency under proof of work is expensive, and these costs can eat up to 80 or 90% of the revenue generated before the merge. Ethereum miners had to immediately sell the ether they mine to cover the cost of a mining [00:06:00] operation. But now under proof of stake, miners don't have to sell all the ether they earn since validating blocks is much cheaper than mining them. Less cell pressure theoretically means the price should go up. We'll just have to wait and see. But what do you think of the merge? Will it finally solve crypto's carbon emission problem? Will more companies follow Ethereum's lead? Leave a comment below with your crypto thoughts, hopeful dooms day or indifferent. We wanna hear them. If you want more breakdowns [00:06:30] of complex tech news, remember to like and subscribe. Thanks for watching.

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