What is the merge? Why is it so important to understand and how does it pertain to DefiSports? To answer those questions, we’re going to have to first look at the historical events that lead to it in order to better our understanding. This article will primarily be focused on educating but this is in no shape or form financial advice. All decisions made in regard to your funds need to be well researched and taken full accountability of.
To begin with, it is important to point out that mining has two primary purposes for existing. First of all, it is to verify all types of transactions on the corresponding blockchain. Secondly, to create new coins that will be in circulation. These newly mined coins will be deposited into the miner’s wallet as a reward function for successfully validating each new block of transactions. Moreover, not all cryptocurrencies are minable. Such as XRP, EOS, Stellar, Nem and more. They have their own consensus algorithms.
Originally Ethereum utilized a consensus algorithm called the Proof of Work to validate transactions. Regardless of which consensus algorithm is used, all are put into practice to deter any organisation or individual from manipulating data in their favour. Proof of Work involves solving complex cryptographic mathematical equations using computational power. It has been a popular consensus algorithm as it is also used to mine Bitcoin. However, it consumed a lot of energy and it tended to consolidate validators down to the individuals or entities that could afford the equipment and operational costs. Scalability concerns are also common beyond a threshold. Planned as far back as 2017, The Merge was a solution to growing problems. The idea of it all was to evolve the consensus algorithm by switching from the Proof of Work to Proof of Stake. When it comes to proof of stake, miners who would like to take up the role would need to pledge a stake of Ethereum (or any corresponding digital coin for that matter) for the right to validate new block transactions.
Moreover, it is called the merge as it merges two independent blockchains that are currently running in parallel. The two blockchains in question are the main Ethereum blockchain and the ‘beacon chain’. We are all familiar with Ethereum’s chain but the beacon chain is practically empty. It has no transactions, no tokens listed nor any Defi apps built upon it. Its sole purpose is to run the Proof of Stake consensus mechanism. By merging both, the beacon chain will replace Ethereum’s proof of work mechanism without disrupting it.
This leads to a very important question, what are the effects of the Merge?
- Ethereum is much more environmentally friendly. After looking through multiple sources, the merge will decrease energy consumption anywhere between 99.80% to 99.988%. To put that into perspective, if you had to run 10 kilometers but changed the running distance to 1.2–20 meters. The difference is staggering! Back in 2021, Ethereum’s carbon emissions clocked in at 47 million tons which are ahead of countries such as Norway and Sweden but only 2 million tons behind Hungary’s carbon emission.
2. Validators will be replacing the miners. In which, validators have to stake their Ether. The more coins they have staked, the higher the chance of being granted to write a block of transactions to Ethereum’s digital ledger. After the merge, it is the amount of Eth one stakes and not the amount of energy expended that dictates control over the network.
3. Due to the miners being replaced, the price won’t be pushed down as much. That is because when miners successfully mine a certain amount of coins, they sell it for fiat. As it is more stable and currently widely accepted. Therefore, keeping the price of Ethereum down. However, now that they’re gone, Ethereum has a lot more leeway to prosper.
4. The gas fees have drastically decreased. At the time of this writing, the low end of fees is 5 GWEI ( 0.2 cents). While the average is 6 GEWI (0.22 cents) and the most is 7 GWEI (0.22 cents). It makes trading a lot more accessible to all types of investors. Which leads to a spike in adoption of their blockchain and higher day-to-day volume.
How will this affect DefiSports launch?
The biggest change that we will encounter is the value of our token. It is because when there are fewer miners, there will be fewer holders selling out in order at their discretion to receive fiat. Which will keep Ethereum’s price from tanking. Because DSC is on its blockchain, the price will be correlated with the price of the native token, Ether. Therefore, when the price of Ether increases, so will the price of DSC. The inverse is true as well where if Ether were to drop in value, so would DSC.
Indirectly, Vitalik’s desicion to cut carbon emission quantities by improving the efficacy of the Ethereum blockchain will serve as a gateway for a lot of environmentally and socially conscious investors to partake in the various Dapps and tokens.
Thank you for reading!