Ethereum is expected to undertake a merger soon together with Beacon Chain, effectively shifting Ethereum fully to a proof-of-stake system and abandoning the proof-of-work. Beacon Chain had previosly been used within the Ethereum network, but now it will take its role as the main guarantor for exchanges. This merge has been lauded by the blockchain community and is seen with good eyes by most of society, since it will reduce Ethereum energy consumption by 99.95%, making the blockchain much more sustainable and cutting on the energy and funds consumed by miners’ computers under the proof-of work system. The Ethereum merge follows a Regenerative Finance (ReFi) model which envisions a harmonic form of capitalist exchange in syntony with environmental concern and collective and individual wellbeing.
The merge is based on a transition from proof-of-work to proof-of-stake which will mean that miners will not need to run their computers in competition for who gets to solve the puzzle first. Instead, a number of Ethereum investors will hold a certain amount of currency in order to secure transactions and keep the value of Ethereum at stable levels. This comes with both high rewards and great responsibilities for stakers, since The Ethereum Foundation is deciding to compensate stakers with 25% APY for the next 12 months, while the obligation to perform their work correctly is higher since they are using their own crypto for staking, so they will want to keep the network trustworthy and the value of the currency stable.
Ethereum has aimed at establishing a proof-of-stake mechanism since its inception, but the risks of sacrificing security and decentralization were too high for a long time. It took years of research and development to reach the point where Ethereum was able to adopt a secure proof-of-stake in the merger with Beacon Chain. Beacon Chain had already been operating at a consensus layer as a separate chain from Mainnet, but now Beacon Chain’s mechanism is established as the main network at the execution layer.
The merge will be a step towards scalability, security and sustainability. As aforementioned, involving Ethereum owners as validators will ensure the smooth operating of the proof-of-stake mechanism, but the most important change is that it will reduce Ethereum’s energy consumption by 99.95%, making proof-of-stake 2000 times more energy efficient than proof-of work. This is an incredibly important change for sustainability and overall viability of blockchain currencies, and should be the example to follow. This will also avoid competition between miners to consume more energy with their computers to solve the puzzles involved in the proof-of-stake mechanism, thus encouraging an “arms race” with increasingly harmful environmental impact. To put it into perspective, the previous proof-of-work mechanism had a carbon footprint of Switzerland, while the new energy expenditure will be equal to the cost of running a laptop for each node of the network.
Ethereum’s merger accomplishes a more holistic understanding of business growth and a much needed change to the logic of blockchain economy. This understanding comes under the name of Regenerative Finance (ReFi), and proposes an economic system merging efficiency and sustainability in a decentralized manner. Innovation and entrepeneurship are highly valuable skills, but they are even more valuable if they are able to address common issues and benefit communities and environments. Overall, ReFi is an adequate concept for understanding the path forward of Web3 technology and the world of decentralized finance, which can address social and environmental issues in a spontaneuous and intuitive way. The Ethereum merger is a perfect example of ReFi, since it attempts to maintain a profitable and efficient network while making adjustments with a significant social and environmental reward.