News Highlight
In September 2022, Ethereum made the transition from a power-hungry, proof-of-work (PoW) system to an environmentally friendly proof-of-stake system. This switch is known as the Ethereum’s Merge
What is Ethereum
- Ethereum is a decentralised and open source blockchain platform, which is a growing list of cryptographic blocks.
- Ether (ETH) is the cryptocurrency token of the Ethereum platform.
- It is the world’s second-largest cryptocurrency by market capitalization, only after bitcoin.
- It is also the world’s most actively used blockchain.
- Ethereum was first proposed in 2013 by a Russian- Canadian cryptocurrency researcher and programmer Vitalik Buterin.
Earlier Proof-of-work (PoW) system
- Ethereum is a decentralised cryptocurrency, that is it does not have institutions like banks approving the transactions that happen on its network – the approvals were earlier happening under the PoW consensus mechanism which was essentially done by miners.
- Here miners compete to solve complex mathematical puzzles, using a massive infrastructure of sophisticated computing hardware, and the first person to solve the puzzle is chosen as a validator.
- This method relies entirely on crypto farms, which are massive warehouses containing rows of computers that solve puzzles.
- Issue with PoW system
- One of the biggest criticisms of the crypto industry was that they sometimes used more electricity than entire countries, so they were a big concern in terms of environmental sustainability.
New Proof-of-stake system
- Ethereum is still a decentralized platform, but under the new concept, miners and mining farms are no longer required to authenticate transactions.
- Instead, (PoS) mechanism that randomly assigns ‘validators’ to approve transactions and earn a small reward.
- Validators are people who volunteer a computer to maintain the blockchain’s integrity by constantly computing the linkage from the first block to the last.
- Benefits of New Method
- The new system would entirely eliminate the need for miners on the Ethereum network.
- One of the biggest benefits of ‘The Merge’ being talked about is that it will make transactions on the Ethereum network more secure.
- It is also being seen as an environmentally conscious move as Ethereum is expected to now consume 99 per cent or so less energy.
Cryptocurrency
- A cryptocurrency is a form of digital or virtual currency based on a network that is distributed across a large number of computers.
- It is nearly impossible to counterfeit or double-spend.
- Many cryptocurrencies are decentralised networks based on blockchain technology.
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Content Source: Indian Express