• Ethereum merge planned for September
• Citigroup highlights benefits
• Significantly better energy efficiency
Ether is the second largest cryptocurrency in the world by market capitalization, but with the Ethereum blockchain behind it, the network is now clearly overloaded. This is reflected in rising transaction fees (the so-called gas fees) and long processing times.
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Ethereum merge is imminent
In order to remedy the situation, a technical upgrade is now to be carried out, as part of which the Proof-of-Work (PoW) algorithm used up to now will be replaced by the Proof-of-Stake (PoS) method. Currently, the blocks anchored in the blockchain are still verified by mainframe computers solving complicated number puzzles and their operators being rewarded with new coins for providing the computing power. But with PoS, no new ETH tokens are mined with the so-called staking, rather users who have a certain amount of Ethereum are randomly selected to validate the next block in the chain. The more coins you own, the more likely it is that you will be selected as a user and rewarded for it.
This update will be completed in September 2022 with the Ethereum merge: Here the beacon chain, which is the blockchain in Ethereum on which the PoS consensus mechanism was established, will be merged with the Ethereum mainnet. The entire network will then run on Proof-of-Stake.
Citigroup sees many benefits
In a recent report, Citigroup pointed out several advantages that this merger brings with it. Although the transaction speed will probably only improve by 10 percent, the merge will create the basis for the next planned upgrade, which should then significantly increase the speed. In addition, the bank assumes that the transaction fees will already be slightly reduced as a result of the merger.
In addition, moving away from PoW will reduce the annual issuance of Ether coins by 4.2 percent, the study said. Given the likely deflationary bias, the token will become a better store of value than before.
The switch to PoS also gives ETH the characteristics of an interest-bearing instrument. This, in turn, would allow different assessment methods to be used that have not previously been possible to use.
However, the Citigroup sees a significant improvement in environmental friendliness in particular. Because new coins will no longer be mined by huge, power-guzzling server farms in the future, energy consumption is expected to be reduced by an incredible 99.95 percent.
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