Ethereum's farewell to mining: First part of the merge update active
Ethereum cryptocurrency mining ending draws near as the first part of the two-stage protocol change was activated on Tuesday.
As planned, the Ethereum network activated the first part of the protocol update on Tuesday afternoon, which heralds the end of mining for the crypto platform.
The partial update called "Bellatrix" initially only prepares the beacon chain already running with Proof of Stake for the merger with the execution layer still working with Proof of Work.
Major exchanges such as Binance had temporarily paused withdrawals and deposits of ether and tokens on the Ethereum blockchain, but have now resumed them.
So far the update doesn't seem to have caused any problems. But the crucial moment of the two-stage transition is yet to come: Bellatrix will be followed by the Paris update for the network layer that is still running on Proof of Work. Reaching a set difficulty value in mining is the decisive trigger here.
The "Difficulty" indicates how many hash values a miner has to produce on average until he finds a valid one for block production.
As soon as the "Terminal Total Difficulty" value of 58,750,000,000,000,000,000,000 (58.75 trillion) is reached, it is said to have finally excavated. If the update works, the next block will then be generated using the PoS method.
Exactly when the target difficulty block is generated depends on the power that gathers to mine. According to current estimates, it could be on September 14th or 15th.
Over a quarter of the nodes have not yet migrated
Ethereum's transition is called Merge, because it is about bringing together the execution layer, which is still working with Proof of Work, with the Beacon Chain using Proof of Stake in an existing manner.
The Beacon Chain has been operational since the end of 2020. It introduces a consensus layer in which blocks are no longer confirmed by mining, i.e. the computationally and power-intensive finding of suitable hashes.
Instead, there is now the role of the validators, who buy into this position with a deposit of 32 Ether and are supposed to ensure the generation of compliant blocks. This is known as staking.
It is striking that more than a quarter of the operators of Ethereum network nodes have not yet switched to the new versions of the client software, according to figures from Ethernodes.org.
When the switch is finalized, these nodes could then continue the chain according to the old rules and no longer participate in the new network. Ethereum could split, referred to as a fork.
Fork planned for GPU mining
A fork for Ethereum has already been announced: EthereumPoW is the name of the project that wants to continue Ethereum in the version with GPU mining.
The first exchanges have already signaled that they will support a possible new coin in their trading.
An Ethereum that continues to run with mining has also been around since 2016 under the name Ethereum classic. A change in the blockchain that was supposed to iron out the consequences of the DAO hack led to a split at the time.
In the run-up to the merger, the Ethereum classic price had already climbed significantly, and the cryptocurrency is currently trading at just over 40 US dollars.
Unless the merge fails due to technical difficulties, the majority of the community and service providers around Ethereum seem to be fully behind the switch.
It is unlikely that another prospecting Ethereum branch could steal PoS Ethereum's place as the number two cryptocurrency.
What the merge brings
With the possible end of mining, the electricity consumption of the Ethereum network should also fall significantly.
The Ethereum Foundation speaks of 99.95 percent less consumption. According to Digiconomist estimates, Ethereum currently consumes around 112 terawatt-hours per year, which roughly corresponds to the needs of a small industrialized country like the Netherlands – with CO₂ emissions roughly equivalent to those of the city-state of Singapore.
After the merger, according to the Foundation, this should drop to 0.01 terawatt-hours per year.
How the update will affect the Ethereum course remains an exciting question mark.
Some factors could favor rising prices. For one, there are no more miners. And thus no one regularly has to throw mined coins onto the market to finance their operating costs for electricity, hardware maintenance, and the like.
At the same time, take deposits are still frozen after the update. You can only dispose of your money after further updates for which there are no dates yet. So no pressure to sell is to be expected there either.
In addition, the reward paid out by the system for new blocks should decrease significantly.
Currently, around 13,000 ethers are newly created per day as a reward for the miners.
With staking, that should only be 1600 ethers per day. Add to that the impact of an update introduced in 2021 called London. Among other things, it ensures that part of the fees for each transaction is destroyed. So ether is taken out of circulation.
Overall, the current inflation of ether money is expected to fall from 4.13 percent to just 0.49 percent, according to the Ethereum Foundation. Fewer fresh coins could make the existing ones more valuable.
In any case, a price-increasing effect was regularly observed with Bitcoin when the reward for the miners was halved. But of course, that doesn't mean that prices can't still fluctuate wildly and Ethereum can't lose value rapidly, as is normal with cryptocurrencies.
And events that cause price movements in the conventional financial world have long been a reason for increases or losses in the crypto world as well.
Sharding follows the merge
What does not change significantly with the update is the performance of the Ethereum network when processing transactions.
The merger will also not change anything in terms of the execution fees, known as gas, which climb quickly when there is a lot of workloads. According to the Ethereum Foundation, there should be very slight speed advantages, specifically, the generation time of new blocks should be reduced from 13.6 seconds to 12 seconds. But that should bring only marginal benefits.
The performance of the network will be improved with later updates. "Sharding" is next on the Ethereum developers' roadmap. For this purpose, Ethereum is to be divided into 64 smaller blockchains.