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The platform was started in 2013 by a teenage programmer, Vitalik Buterin, who is now regarded as one of the industry’s elder statesmen. Mr. Buterin wanted to create a crypto system that was more flexible than Bitcoin and could instantly execute financial contracts and other complex forms of exchange.
Ethereum’s design allows it to support a range of financial engineering. Programmers can build applications using the software to perform more complicated tasks than simple money transfers. Thousands of businesses and projects in the experimental world of decentralized finance now use the platform to offer lending, borrowing and other sophisticated investment options. Many nonfungible tokens — the unique digital collectibles known as NFTs — are built on Ethereum.
At its core, the Merge is a change to Ethereum’s verification system. When someone sends money in a traditional transaction, a bank serves as the middleman, verifying that one person has sufficient funds to pay someone else.
Crypto operates without that middleman. In this alternate financial system, transactions are verified by a scattered network of computers. Anyone can plug a machine into the network by running software that solves complex puzzles, an energy-guzzling process for confirming transactions. Essentially, the computers are racing one another: When the puzzle is solved, the winning participants are rewarded with new coins in the digital currency they are verifying.
This verification process is widely known as crypto mining and has the technical name “proof of work.” By some estimates, the amount of energy consumed each year in mining is comparable to the annual emissions of entire countries.
The Merge is set to shift Ethereum to an alternate framework called “proof of stake,” which requires less energy. In a proof-of-stake system, computers don’t burn energy racing to verify transactions. Instead, crypto investors deposit a certain number of digital coins in a shared pool, which enters them into a lottery. Each time an exchange happens, a participant is selected from the lottery to verify the transaction and win the rewards.
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