Vitalik Buterin and many other prominent personalities like Charles Hoskinson of Cardano and Gavin Wood have been congratulating the Ethereum community on the successful completion of the merge with the Beacon network and the switch to the PoS consensus protocol that occurred seamlessly, without any interruptions of the service. It is an achievement, but what does it mean for the crypto industry?
The big impact of the event
7 years ago, when Ethereum was first introduced to the world, it was built as a Proof-of-Work network where miners were supposed to validate transactions by adding new blocks through the mining process. However, the surge in energy consumption across the two biggest networks, Bitcoin and Ethereum, caused many crypto enthusiasts to think about the future of the industry and its environmental impact.
Vitalik himself became quite skeptical of the PoW model and started talking about many vulnerabilities that such a consensus mechanism presents in the distant future. Plans to switch to the PoS mechanism started appearing in 2017, but the Beacon Chain was launched only in 2020 with the intention of testing staking mechanisms and other important features.
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After the merge, all new transactions are validated by stakeholders and mining is no longer a thing on the Ethereum network.
Among other massive changes is the reduction of energy consumption by 99.95% which will reduce the global energy consumption by at least 0.2%.
The issuance rate of new ETH will be reduced by 90% meaning that the market will feel the deflationary effect quite soon.
Buterin stated that the throughput of the network will be increased with TPS reaching a massive 100 thousand number.
The reaction of the market
Despite the introduction of the deflationary mechanism and promises from developers that everything is for the best, the price of ETH dropped by about 10% within 6 hours after the merge. At the time of writing, the asset is tanking and reached its monthly low of $1456. The same happened to Bitcoin which also saw a massive decline ahead of the Ethereum merge. The long-term ramifications of the event are still unclear.
