For those who follow cryptocurrency news, something big just happened. Ethereum, probably second only to Bitcoin, merged.
There are two things that must be understood before taking a risk with the Ethereum chain. First, what is the merge, and second what about the proof of work fork that has already broken away from the merged Ethereum blockchain.
What is the merge?
Traditionally, blockchain cryptocurrencies rely on computers to conduct deciphering the latest link in the blockchain. This is enabled by the encryption in place on the crypto-chain. As each transaction occurs, it is encoded on a block. Each block has a permanent link to the block before it. Once a new block is entered into the chain it automatically comes with a second link which will connect the value of that block on the miner who has the computing power to decipher the second link and thus come into ownership of the cryptocurrency attached to the deciphered block.
Even then, however, there remains certain protections beyond the mining process for assuring that a transaction is legitimate. One of these arises from the fact that each new block added to the chain as a new and distinct address than any other block. If someone tries to forge a previous transaction they must not only know the link from which the block was decoded. If such a move is made from a reputable cryptocurrency and manages to convince miners to switch to the new, forked chain then such derailment can become a separate blockchain entirely.
There remain certain additional protections against forking off of the main crypto-chain. First, as blockchain is a distributed ledger, there are numerous copies of any given ledger throughout the cloud. Once a miner uncovers the link necessary to access the newest block, the distributed ledgers must confirm that such a link is proper and matches the previous link in the chain.
But what is it, really? Like a merger and acquisition, or something entirely different?
For some time now, Ethereum has actually operated two blockchains simultaneously. The ETH blockchain which allows for miners to earn crypto via a complex computer challenge that literally has no significant application other than to find the next link in the chain. It is estimated that crypto-mining requires 112 Terawatt hours annually to meet the demands of millions of drives trying to figure out the all important link.
But aside from this proof of work model, Ethereum has operated a second blockchain running beneath its better known chain. Thus, a chain operates on a proof of stake model. Proof of stake is a closed cryptocurrency as auditors of Ethereum 2.0 must possess a certain amount of the currency before they are allowed to stake other users. They are also limited in the size and nature of their own transactions during the short time they are allowed to act as auditors.
The Merge, therefore, is a combination of the proof of work model with the proof of stake model. According to Vitalak Buterin, CEO of Ethereum, the goal of the merge is to demonstrate that cryptocurrency can be gained without such a high cost to the energy economy and still bring value to any given user.
But many existing ETH owners are not entirely keen on the concept of a merge as they see it devaluing the currency and making it easier to corrupt or defraud. This group of miners have already created a crypto fork that will continue act as Ethereum 1.0 and allow for earnings through proof of work.
What does this mean for Vietnam?
Without rehashing previous posts, I want to focus on one element raised by the merge: accountability.
Currently, Vietnam continues to prohibit the use of cryptocurrency as legal tender. Despite such regulations, Vietnam has the highest per capita adoption of crypto ownership in the world. In prohibiting crypto usage within its territory, Vietnam authorities cited a number of fraudulent crypto assets set up to benefit the founders at the loss of newer subscribers. In essence, Vietnam became a hotbed of Ponzi schemes. Seeing this attack, and the defrauding of thousands of its citizens, Vietnam decided to move easy from the currency completely rather than to regulate it.
Now, however, we are catching small glimpses into a possible adoption in the future. These inklings remain minor and there is no telling when the government or the State Bank of Vietnam might actually take the steps of regulating the currency’s use. Due to the process of padding legislation, the soonest we might see a law on the subject is in the summer of 2023. And then we’ll also have to wait for the government to issue implementation decrees which, as we’ve seen, can take a great many years to prepare and promulgate.
All of that said, with the recent drops in crypto value, Vietnam may be acting with patient wisdom in seeing what other services may be available on crypto blockchains. Smart contracts that could bring many sectors a defined and unchangeable agreement. Blockchain adoption in general can also serve many uses beyond DeFi as investors look for means to take advantage of such technology.
Either way, Vietnam is well versed in carefully considering its options before it acts. It will be interesting to see what the nation’s reactions to the blockchain, the merge, and the myriad other uses to which the technology may apply.