The Merge: Ethereum’s change to Proof of Stake

You may have recently heard about “The Merge” that the Ethereum blockchain is set to undergo in May or June of this year. We created this short article to help readers understand exactly what it means.

What is Ethereum?

Ethereum is well known as being the second largest cryptocurrency by market capitalization, with a market capitalization of over $400bn USD. Ethereum is also the primary blockchain utilized by NFT creators. 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.

The Merge

In an effort to reduce its electricity consumption and quicken transaction speeds, Ethereum will be switching over to proof of stake as its consensus mechanism. The change is expected to happen in either May or June 2022, when miners will be replaced with validators. In order to become a validator, you will need to stake 32 ETH – for those who wish to help validate the blockchain but do not have that much ETH, they will be able to participate in staking pools, similar to how there are mining pools today for those with smaller amounts of mining power. Staking rewards are expected to be about 7% to 12% once the switch is made.

Why is Ethereum making this switch?

Ethereum had always intended to be a proof of stake chain, however they 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 for instance uses roughly the same amount of energy as the Netherlands does on a yearly basis. The change to proof of stake will reduce Ethereum’s electricity consumption by ~99%, making it much more environmentally friendly.

Additionally, Ethereum is hoping to speed up its transaction speeds. In 2023 Ethereum is aiming 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 are very excited for the merge, miners and chip manufacturers are not as pleased, with their sales and stock prices plummeting. Unfortunately the merge is not expected to 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.

If you are interested in offering a sportsbook or casino that is built on-chain, Lion Gaming Group offers white label betting solutions over a variety of blockchains, including Ethereum, Avalanche, Moonbeam and more. Contact [email protected] today for a free consultation.

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