Beginner’s guide to Ethereum (ETH) and the Merge
Investing in cryptocurrency can be hard enough, and understanding the technical parts of blockchain technology can be even harder – but it’s not impossible! In this beginner’s guide to Ethereum, you’ll learn everything you need to know about cryptocurrency and blockchain technology before investing in ether and tokens. You’ll learn how Ethereum works, how you can buy ether, where the best exchanges are, and what the difference between ether and Ethereum is! By the end of this guide, you’ll be an expert on Ethereum!
What is the Ethereum Merge?
This September, Ethereum is planning to undergo the biggest update in its history: the Merge, a switch from a proof-of-work consensus mechanism to proof-of-stake.
Since the genesis block was mined in 2015, Ethereum has run with a proof-of-work (PoW) consensus mechanism. In PoW, miners secure the blockchain by expending computational energy in exchange for rewards. However, PoW blockchains are notorious for consuming massive amounts of energy. Currently, the Ethereum foundation estimates that the total energy consumption is around 112 terawatt-hours per year, around that of the Netherlands. The carbon emissions are approximate to Singapore’s at 53 megatons a year.
In proof-of-stake (PoS) blockchains, validators secure the network by staking ETH. If they are dishonest, the ETH they stake is slashed. This type of consensus mechanism is far more energy efficient than PoW. Developers hope that the Merge will reduce power consumption by 99%.
The Merge is a massive technological undertaking for a chain that supports hundreds of billions of dollars worth of value. Developers have spent years figuring out how to change over the fundamental consensus mechanism of the chain without significantly impacting transactions. Since 2020, a separate PoS test chain known as Beacon chain has been running in parallel to the current Ethereum mainnet. Since November 2020, a one-way bridge from the PoW mainnett to the PoS Beacon chain has allowed over 421k validators to deposit capital for staking. During the Merge, the Beacon chain will be merged into the Ethereum mainnet.
The resulting solution looks something like a zipper merge on a highway and should take only 12 minutes to complete. In a statement to Decrypt, Ethereum core developer Marius Van Der Wijden said that the transition should be seamless, and advises that Ethereum holders do nothing. “I myself wouldn’t send, like, $100 million during those 12 minutes. But 12 minutes after, the chain finalizes. Then everything should be fine. Then we can start celebrating,” said Van Der Wijden.
What could go wrong with the Merge?
The switch from PoW to PoS has been in the works for over half a decade. Like with all major projects, there’s a chance that something can go seriously wrong. One major criticism levied at the PoS model is the perceived opportunity for centralization. According to metrics from Beacon chain analytics site Dune, major companies like Binance, Coinbase and Kraken have provided nearly 30% of staked ETH.
Both PoW mining and PoS stalking require capital, but in different ways. Miners require access to plentiful energy and computational equipment. Even a cheap mining setup would cost thousands of dollars, not including the electricity. Staking requires 32 ETH – nearly $50k. However, companies like Lido are providing fractional staking for people without the initial capital to run a full validator node.
Others are devastated by the impact the changeover will have on their own mining operations. Mesari estimates that the participants in Ethereum’s $19 billion mining industry will need to find a new job. Cryptocurrency miners in India are concerned that their mining equipment will be rendered obsolete after the Merge, with some looking to mine other, less valuable PoW tokens.
Some commentators are worried that the Merge is a perfect opportunity for scammers. Others say the Merge will help Ethereum “decouple” from other cryptocurrencies.
We shall wait and see.
The merge is still expected to happen around Sep 13-15. What's happening today is the Bellatrix hard fork, which *prepares* the chain for the merge. Still important though – make sure to update your clients!
— vitalik.eth (@VitalikButerin) September 6, 2022
What is Ethereum again?
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property.
What is Ether (ETH)?
So, Ether is the coin that powers or fuels operations on Ethereum. They’re generated through a process called mining. If you want to be an active user of DApps and smart contracts that run on top of Ethereum, then you’ll need some Ether. If not, don’t worry about it; you can still use many different dapps just fine without it!
Remember, Ethereum is the blockchain and ether is the currency, though the two terms are used interchangeably. We don’t advise correcting people at parties – no one wants to be that guy.
Where can I buy Ether (ETH)?
You can buy ETH on exchanges, such as Coinbase. You can also buy it with fiat currency (e.g., USD) through peer-to-peer services like LocalBitcoins or Wall of Coins. To learn more about crypto exchanges and peer-to-peer services, check out our beginner’s guides on coincub.com: https://coincub.com/.
Best places to buy ETH
Coinbase and Kraken are two of the most popular places to buy ETH, but they aren’t your only options. Depending on where you live, you may be able to purchase ETH at a local currency exchange or ATM (Bitcoin ATMs will often let you buy Ether with Bitcoin). If none of these options work for you, don’t worry: there are also some excellent exchanges that offer ETH directly. Checkout our honest reviews of crypto exchanges here.
How do I store Ether safely?
If you’re new to cryptocurrency, one of your first questions is likely how do I store my cryptocurrency?. With many platforms and exchanges competing for your business, it’s easy to get overwhelmed by all of the options available. For most people, a safe place to store their crypto is their own wallet on their desktop or mobile device—but how do you know which wallet is best? And how can you be sure that wallet is safe? In reality, there are two main ways of storing ether safely: cold storage (offline) or hot storage (online). Let’s take a look at each in turn.
Cold storage is probably safer—but it isn’t necessarily user-friendly. A cold wallet, such as a hardware wallet or paper wallet, is stored offline and never connected to any kind of network. You can store your ethers on hardware wallets like Trezor or Ledger, or you can create a paper wallet by printing out your public and private keys and then either storing them in a safe place. Remember, if you lose those keys, your ETH is gone forever.
A hot wallet means your cryptocurrency is stored on an online device, such as your desktop or mobile phone. Hot wallets like Metamask are more accessible, but they’re much less safe and provide an easy target for hackers. You should only keep the amount of ETH you’re actively using in a hot waller/
How do I trade Ether on an exchange?
Once you’ve picked an exchange, you can open an account by entering your name, email address and a password. Some exchanges will require additional information such as proof of ID and proof of residency. You’ll also be asked to set up two-factor authentication (2FA) for extra security—this is used to protect against hackers trying to log in with your credentials from another location.