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Ethereum, the blockchain that powers large parts of the crypto ecosystem and underpins the world’s second-largest cryptocurrency, completed a transformative software update on Thursday, its co-founder Vitalik Buterin said. he announced on Twitter, a landmark in digital history that could help the sector shed its environmentally unfriendly reputation and pave the way for wider mainstream adoption.

Key facts

Ethereum completed an ambitious software update on Thursday that connects it to another network and fundamentally changes the way transactions are verified on the blockchain.

Dubbed the β€œMerge,” the overhaul moves Ethereum away from an energy-intensive proof-of-work mechanism that relies on crypto miners to maintain the network by solving complex mathematical problems.

Post-Merge Ethereum will use a proof-of-stake mechanism that eliminates cryptocurrency mining and requires “validators” to stake their own cryptocurrency for a chance to verify a transaction in exchange for a reward.

The more Ether staked, the greater the chance of winning, although all Ether staked will generate a return.

The transition could reduce Ethereum’s energy consumption by as much as 99.9%, according to the Ethereum Foundation, something that will help the sector win over critics who say cryptocurrencies are environmentally unsustainable.

The merger was marked by parties around the world and celebrated by Buterin, who she called it’s a “big moment” for the ecosystem.

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Key background

Ethereum Merge has been in the works for years and its completion has been hotly anticipated in the crypto industry. It represents a landmark in the field’s short history and could change its trajectory going forward by tackling one of the most pressing issues preventing mainstream adoption, environmental impact. Currently, Ethereum has an energy footprint on par with a small country and its annual consumption is comparable to Chile. In addition to energy, it is hoped that the change will also increase the security of the Ethereum blockchain and ultimately lay the groundwork for the development of a faster and cheaper network, which are also big issues. The upgrade could also lead to greater institutional acceptance of ether by removing some of the hurdles investors have faced, Bank of America said.

What to watch out for

Any defects. Ethereum is one of the most used blockchains in the crypto space, and any post-merger issues could have far-reaching consequences. In addition to supporting the second largest cryptocurrency token, Ether, Ethereum supports a number of other cryptocurrency tokens and other crypto products such as NFTs would also be affected. The complexity and scale of the project delayed its completion several times.

A big number

193 billion dollars. That’s the market capitalization of Ether, making it the second largest cryptocurrency in the world. It accounts for almost 20% of the total cryptocurrency market. Bitcoin, which has a market cap of around $385 billion, still uses a proof-of-work system and is widely criticized for its environmental impact.

Further reading

Hedge Funds Race to Bet on Ethereum ‘Merge’ Outcome (Financial Times)

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Phase One of Ethereum Merger, the Biggest Thing in Crypto Since Bitcoin, Goes Live (Forbes)