Cryptocurrency Market: What You Need to Know About the Ethereum Network Fusion

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After the release of the first Ethereum White Paper in 2014, Ethereum developers made it clear that they would eventually want to implement the Ethereum protocol. proof-of-stake instead proof of workhowever, due to technical difficulties, this has not been possible so far.

The current Ropsten test network will perform the connection on the same day. If the connection to the Ropsten network is successful, the Ethereum network will connect the other two test networks that existed before the actual connection. Given this news and information from the Ethereum Foundation, there are indications that the merger will take place in August, provided that the tests are successful. As the merger will take place in the near future, let’s discuss how it will transform the Ethereum network, both technically and economically.

The most important change will be the transition from protocol proof of work about proof-of-stake, this will fundamentally change the way we check network operations. Instead of the huge computing power given to the network by cryptocurrency miners, the owners of the ether will check the operation.

This means that they will be able to block broadcasts as collateral in order to control transactions – in other words, to collect the broadcasts they have. In return, they will receive an operating fee along with security costs. For now, as part of the financial incentives for miners, the costs will be reimbursed in the form of newly released Ethers, which will then be applied directly to the congregations to verify operations. The main advantage of the protocol proof-of-stake In terms of security, stakeholders are kept under strict control. If the network detects that the collector is acting unethically – for example, tried to reverse the transaction – the network may take some or all of the collected broadcasts.

After implementing the protocol proof-of-stake, Ethereum network will reduce energy consumption by about 99.95%. To understand why this is happening, the differences between consensus mechanisms need to be re-examined. For the Ethereum network, a new block is now completed approximately every 13 seconds. During these 13 seconds, each miner struggles to become the person who completes the block. It uses computing power and therefore requires electricity. However, as a result, only one miner completes a block and checks operations, although others have spent a lot of energy on the same block. As part of the protocol proof-of-stake, a validator is randomly selected to complete the block based on the number of broadcasts collected. This happens before the block is created so that no other collector tries to complete the same block, resulting in a reduction in Ethereum network power consumption of about 99.95%.

Security costs can also be significantly reduced due to the sharp reduction in the amount of energy required to test transactions on the Ethereum network. As part of the protocol proof of work The cost of securing the Ethereum network is about 5.4 million ETH per year.

This means that 5.4 million new Ethers are released each year, up to about 120 million Ether supplies to encourage miners to test the operation. During the merger, security costs will fall to about 0.5 million ETH per year as compensation for collectors. This is a significant reduction in ethereum inflation and may even lead to deflation, as the operating costs paid are projected to exceed Ethereum hedging costs. As for operating fees, a significant proportion will be “burned” and thus removed from supply. Over time, this could come as a supply shock, as the market becomes accustomed to absorbing 5.4 million newly released Ethers a year, suddenly only about 0.5 million Ethers will be released.

It can also be claimed that there is a protocol proof-of-stake is more economically fair for ethereum owners proof of work. In the case of protocol proof of work bacararsan de facto As long as you invest heavily in processing power, check transactions without the need for ethers. This means that ETH owners are not compensated for inflation or operating fees by diluting the cryptocurrency. In the case of protocol proof-of-stake owners are fairly rewarded with inflation and operating fees.

The merger will not be able to further expand the Ethereum network. If successful, it will reduce the block creation time from about 13 seconds to 12 seconds by maintaining the same block size. Finally, it will increase the efficiency of the operation by 7.5%, but not more. According to the current schedule, the scale of the Ethereum network will not improve until 2023. Finally, during this time, broken chains (fragmentation) will take place, which will significantly improve the scale of the Ethereum network and possibly require less equipment to verify operations.

On December 1, 2020, a version of the Ethereum network using the protocol was launched proof-of-stake, Known as the Beacon Chain. Beacon Chain is a version that will actually connect to the protocol-based Ethereum network proof of work during merger. From the moment it starts, Beacon Chain completes the empty blocks to ensure that it works as intended. To test these blocks, ethereum owners were able to collect ethers as part of the Beacon Chain. Beacon Chain currently holds more than 10% of its total Ether supply – about 12.8 million ETH.

However, these broadcasts were blocked by collecting ethers in the Lighthouse Chain. Initially, it was planned to unblock the funds collected during the merger, but in order to technically simplify the merger process, the developers of the Ethereum network decided not to unlock the funds collected so far. The unblocking is likely to take place 6 months after the merger and will then cover the 12.8 million ETHs and ethers collected. Funds to cover security and operating expenses for meetings will also be blocked during these months.

This means that, perhaps until next year, it is expected that newly issued ETs or operating fees will not be released, potentially reducing sales pressure. On the other hand, when accumulated ethers are removed from the block, their amount can even exceed 15 million ETH, which can put strong pressure on sales.

The merger will not significantly affect the Ethereum network. First, it is not expected to affect ETH owners or require them to take any action. The connection will be transparent for ETH owners. Second, it should not affect tokens or decentralized applications that currently use ethereum. This means that tokens and smart contracts on the Ethereum network will work as before the merger.

Although the developers of the Ethereum network have been working on the merger for years, the merger may fail or be delayed. As in all other aspects of the cryptocurrency market, there are simply no guarantees.

Mads Eberhardt, Saxo Bank’s cryptocurrency market analyst

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