Ethereum Merge: Ethereum’s change to Proof of Stake
In September 2022, The Ethereum blockchain successfully completed The Merge. We created this short article to help readers understand exactly what it means.
Before diving into The Merge, let’s briefly cover what Ethereum is. Ethereum is well known as being the second largest cryptocurrency by market capitalization, with a market capitalization of over $200 billion as of July 2023. Ethereum was founded in 2013 by several well known programmers in the cryptocurrency space, most notably Vitalik Buterin and Gavin Wood.
Ethereum is also known for being the primary blockchain utilized by NFT creators and DeFi projects. Like Bitcoin, Ethereum currently uses proof of work as its consensus mechanism, which as a result comes with slower transaction speeds and high energy costs. In order to reduce costs and improve transaction speeds, there are several Layer 2 projects working to improve the Ethereum ecosystem, such as Polygon.
In an effort to reduce its electricity consumption and quicken transaction speeds, Ethereum switched over to proof of stake as its consensus mechanism. The Ethereum proof of stake change happened in September 2022, when miners were replaced with validators. In order to become a validator, it was necessary to stake 32 ETH – for those who wished to help validate the blockchain but do not have that much ETH, they were able to participate in staking pools, similar to how there are mining pools today for those with smaller amounts of mining power. Staking rewards were also expected to be about 7% to 12% once the switch was made.
Why did The Merge happen?
Ethereum had always intended to be a proof of stake chain, however the team decided to go with proof of work to speed up their go-to-market with the plan being to switch to proof of stake later on. As cryptocurrencies have gained traction over the last few years, regulators and lawmakers have started to take note of the large energy consumption that comes with it. Ethereum specifically uses roughly the same amount of energy as the Netherlands does on a yearly basis. The Ethereum change to proof of stake had intended to reduce Ethereum’s electricity consumption by ~99%, making it much more environmentally friendly.
Additionally, The Merge was also proposed to increase its transaction speeds. Earlier in 2023 Ethereum also aimed to roll out several other improvements such as sharding and rollups in order to try and get the level of transactions it can handle to as high as 100,000+ per second.
What else should I know about the Ethereum Merge?
While most Ethereum holders were very excited for The Merge, miners and chip manufacturers were not as pleased, with their sales and stock prices plummeting. Unfortunately The Merge also did not lower Ethereum’s notoriously expensive gas fees, which will likely remain relatively pricey for the foreseeable future.
How does The Merge relate to iGaming?
While ETH has not been as popular of a payment rail for iGaming as other cryptocurrencies, such as Bitcoin, the Ethereum blockchain is the preferred chain for NFT smart contracts and for many metaverse related projects. As the iGaming industry starts to move into the metaverse with virtual casinos in places such as Decentraland, it is important to know about infrastructure changes that the Ethereum blockchain undergoes.