What Is Ethereum 2.0? Understanding The Ethereum Merge – Forbes Advisor INDIA

The long-awaited Ethereum (ETH) update, known as “the merge,” happened in the year 2022.

“And we finalized! Happy merge, all. This is a big moment for the Ethereum ecosystem,” Vitalik Buterin, co-founder of Ethereum, said on Twitter on Sept. 15, 2022.

Google Search celebrated the “Ethereum merge” by depicting two bears, one white representing the consensus layer, and the other a brownish black, combining to make the ultimate Ethereum panda bear, a metaphor for post-merge Ethereum.

The merge switches the Ethereum network from an energy-intensive proof-of-work consensus mechanism to proof of stake. ETH is still down by 38.7% from its all-time high. 

Thomas Perfumo, head of business operations and strategy at Kraken, says, “The merge supports Ethereum’s future roadmap,” Perfumo says. “I expect (this) will allow Ethereum to scale its transaction throughput, further reduce cost and enable new applications to drive greater utility on-chain.”

Scaling, reducing costs and enabling new applications could also benefit Ethereum and its investors.

What Is the Merge?

Originally referred to as Ethereum 2.0, the merge is an upgraded version of the Ethereum blockchain that uses a proof-of-stake consensus mechanism to verify transactions via staking.

The staking mechanism Ethereum replaces the proof-of-work model where cryptocurrency miners use high-powered computers to complete complex mathematical functions known as hashes. The mining process requires an ever-increasing amount of electricity to verify Ethereum transactions before they are recorded on the public blockchain.

Proof-of-work-systems devour a tremendous amount of electricity. Bitcoin mining, for example, currently consumes electricity at an annualized rate of 127 terawatt-hours (TWh). That’s now higher than the power consumption of the entire country of Norway.

With proof of work, Ethereum had an annual power consumption roughly equal to Finland, producing a carbon footprint similar to Switzerland. Post-merge, Ethereum is expected to reduce its carbon footprint by up to 99.95%, addressing one of the major criticisms of the cryptocurrency.

Ethereum vs. Ethereum 2.0: What’s the Difference?

In December 2020, Ethereum began running on two parallel blockchains, a legacy one that operates using proof of work (Ethereum Mainnet) and a new chain for proof of stake (Beacon Chain). The merge combined Ethereum’s Mainnet and Beacon Chain into one unified blockchain operating on a proof of stake protocol.

The Beacon Chain has acted as a proof-of-stake ledger on the Mainnet since its launch in 2020.

The Ethereum Mainnet and Beacon Chain were originally referred to as ETH1 and ETH2, respectively. Their eventual merge was expected to be called Ethereum 2.0.

However, in January, the Ethereum Foundation asked users to start phasing out the term Ethereum 2.0. The Foundation decided that language no longer accurately represented their roadmap. They believed Ethereum 2.0 sounded too much like a different operating system, which is not at all what the merge is intended to implement.

With Ethereum 2.0 no longer in the official vocabulary, the Ethereum Foundation also asked users to refer to the Ethereum Mainnet as the “execution layer” rather than ETH1 and the Beacon Chain as the “consensus layer,” rather than ETH2. This terminology, they believe, better reflected their goals for the platform.

However, many crypto investors and enthusiasts still refer to post-merge Ethereum as Ethereum 2.0.

Ethereum Is Moving from Mining to Staking

With the completion of Ethereum’s merge, the staking process replaces the mining one for verifying transactions.

Staking requires users to lock up a certain amount of cryptocurrency to participate in the transaction verification process. In a proof-of-stake model, an algorithm selects which validator gets to add the next block to a…