What changes in the cryptocurrency market after the Ethereum merger

Ethereum has completed a long-awaited upgrade to its system, in a move that should lower its energy costs and set the stage for greater use of cryptography technology in mainstream finance.

The update, known in the industry as “Merge” and which changes the way new transactions are verified on the Ethereum blockchain, was completed on Thursday (15), said co-founder Vitalik Buterin.

Ethereum powers large swaths of the Web3 world, which includes applications such as digital collectibles and decentralized financial systems.

The event, promised by developers many years ago, was hailed by fans as one of the most significant moments in the short history of cryptocurrencies. They planned “fusion parties” in cities around the world and followed parties on social media.

“This is the first step in Ethereum’s great journey to be a very mature system. There are still steps to be taken,” Buterin told the developers.

The merger marked a high-stakes test for the cryptocurrency industry, after the fall in token prices this spring wiped $2 trillion off the value of digital assets and shook market confidence.

Changing the architecture that underpins the $200 billion ether cryptocurrency, the flagship token on the Ethereum blockchain, and tens of billions of related assets and applications is fraught with risk, from technical issues to disputes between players. decentralized network participants, even after the merger is completed.

Its supporters hope that a successful merger will increase confidence in Ethereum, launched in 2015 by Russian-Canadian programmer Buterin, and the numerous tokens and projects running on its blockchain, as well as dampen criticism over its energy consumption.

However, Ethereum developers said they would need to monitor the network for the next few hours and days to ensure the update runs smoothly.

“It’s a complicated task,” said Edouard Hindi, chief investment officer at crypto hedge fund Tyr Capital. “A forgotten detail (…) can generate a lot of volatility, and the market is in a panic mood.”

The Merger represents just one step in a plan outlined by Ethereum developers to overcome the limits of network capacity, which are seen as a major obstacle to achieving widespread adoption of decentralized finance.

“[A Merge] It solves one problem, but it doesn’t solve many others,” said Lars Seier Christensen, co-founder of Saxo Bank, which now runs a blockchain project called Concordium.

Ethereum, like bitcoin, has until now relied on network participants to solve complex math problems to validate new blocks, a process called proof-of-work. Ethereum’s energy consumption was similar to that of Finland.

The Merger refers to the moment when the Ethereum blockchain links to a new network where transactions are validated by a group of individuals and corporations who staked their own tokens as a guarantee of the security of the network, a system called proof of participation.

The Ethereum Foundation estimates that replacing proof-of-work will reduce blockchain power consumption by around 99.95%. It will also eliminate the need for Ethereum miners, companies that make money by validating new blocks through proof of work.

The anticipation of the Merger helped boost the price of ether, which is up about 75% from its low point in June. Ether gained ground against bitcoin, which has only recovered 15% over the same period.

However, the years of effort to complete the upgrade highlighted the difficulty of making improvements to the Ethereum blockchain. Network transactions are still hampered by low speed and high costs, which critics say limit the system’s ability to grow.

Hindi said the merger was “just a step in the right direction. There are three or four more steps. It’s a two or three year process. It’s a big plan that’s being rolled out, and we’re going to have a lot of surprises along the way, good and bad. “

Translated by Luiz Roberto M. Gonçalves