Are you wondering whether the Ethereum merge has any risks? If so, then this crypto tax Australia article is for you! We will explore what the Ethereum merge is, how it works and if there are any risks involved. So keep reading this crypto article, to find out more!
On September 15, 2022, Ethereum officially merged its legacy execution layer with the new proof-of-stake consensus layer formerly known as Ethereum 2.0; transitioning the network’s overall mechanism to PoS and drastically decreasing energy consumption by an astonishing 99.95%. This momentous Merge on the blockchain marked a revolutionary milestone in cryptocurrency history: one that will have lasting effects for years to come!
From a technical standpoint, the Merge connected Ethereum’s original execution layer with its new Proof-of-Stake consensus layer known as The Beacon Chain. This is only the first step in Ethereum’s progress plan which will eventually encompass future milestones like The Surge, The Verge, The Purge and finally – The Splurge.
By merging Ethereum’s two implementations, co-creator Vitalik Buterin aims to complete 55% of the blockchain network’s development. This integration is a significant step forward in achieving greater scalability, sustainability, and security while still preserving decentralization across the network.
The Merge made Proof of Work (PoW) obsolete, allowing Ethereum staking to become the primary way of securing the network. Stakers are offered rewards for supplying their computing power and verifying transactions on the blockchain. Thanks to this transition, all exchanges in a post-Merge world will only be validated by Ethereum stakers instead of miners.
The move to Proof-of-Stake is having a major effect on the availability of Ether (ETH) as validators are not being rewarded for their efforts in maintaining network security. As a result, ETH has become an increasingly deflationary asset.
Right now, Ethereum’s staking platform only allows deposits that cannot be taken out. A vast amount of ETH (in the billions) is currently being held in stake on Ethereum – and it won’t move until a withdrawal function is included by its developers at some point down the line.
One significant concern of the Merge is that it might impede decentralization by increasing power in a few hands. The more influential stakers are, the higher their rewards will be when validating blocks. This could result in an unfavorable circumstance where a limited number of wealthy stakeholders control most of the network’s stake and possess disproportionate authority over it.
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