Ethereum has completed a long-awaited upgrade to its system in an effort to lower its energy costs and set the stage for the increased use of crypto technology in traditional finance.
The upgrade, known in the industry as “Merge,” which changes the way new transactions are verified on the Ethereum blockchain, was completed early Thursday, co-founder Vitalik Buterin said.
Ethereum powers large swaths of the Web3 world, which includes applications such as digital collectibles and decentralized financial systems.
The milestone, which has been promised by developers for many years, has been hailed as one of the most important moments in crypto’s short history by fans, who have planned ‘mergers’ in cities around the world. whole and followed by live monitoring evenings on social networks. .
“This is the first step in Ethereum’s great journey to become a very mature system. There are still steps to go,” Buterin told developers.
The merger marked a high-stakes test for the crypto sector after plummeting token prices this spring wiped $2 billion off the value of digital assets and shook confidence in the market.
Changing the architecture that underpins the $200 billion Ethereum cryptocurrency, the flagship Ethereum blockchain token, and tens of billions of other related assets and applications poses many risks, from technical hiccups to disputes. between participants in the decentralized network, even after the merger. completed.
Its supporters expect a successful merger to bolster faith in Ethereum, launched in 2015 by Russian-Canadian programmer Buterin, and the multitude of tokens and projects that run on its blockchain, as well as the fierce criticism of its energy consumption.
However, the Ethereum developers said they should monitor the network over the coming hours and days to ensure the upgrade is working properly.
“It’s a complicated task,” said Edouard Hindi, chief investment officer of crypto hedge fund Tyr Capital. “A beautiful forgotten melody. . . could lead to a lot of volatility, and the market is in a panicked mood.
The merger is just one step in a plan outlined by Ethereum developers to overcome network capacity limitations, which are seen as a major impediment to the widespread adoption of decentralized finance.
“[The Merge] solves one problem, but it doesn’t solve many other problems,” said Lars Seier Christensen, co-founder of Saxo Bank who now leads a blockchain project called Concordium.
Ethereum, like bitcoin, has until now relied on network participants to solve complex mathematical problems to validate new blocks, a process called proof-of-work. Ethereum’s power consumption was similar to that of Finland.
The merger refers to when the existing Ethereum blockchain is linked to a new network where transactions are validated by a group of individuals and companies who have staked their own tokens as a guarantee of network security, a system called proof. of attendance.
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The Ethereum Foundation estimates that replacing proof of work will reduce blockchain power consumption by approximately 99.95%. It will also eliminate the need for Ethereum miners, companies that make money by validating new blocks via proof of work.
Anticipation of the merger helped push up the price of ether, which is up about 75% from its low point in June. Ether gained ground against bitcoin, which only recovered 15% over the same period.
However, the years-long effort to complete the upgrade highlighted the difficulty of making improvements to the Ethereum blockchain. Network transactions are still hampered by slow speed and high costs, which critics say limits the system’s ability to grow.
Hindi said the merger was “just a step in the right direction. There are still three or four steps. It is a two or three year process. It’s a big, big plan unfolding and we’ll have a lot of surprises along the way, some good ones and some bad ones.”
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