Ethereum is hours away from its biggest upgrade in history

For most of the crypto community, struggling to understand Bitcoin when you're first starting out is a right of passage. As Crypto Uncomplicated highlighted, it's important to lay the groundwork for understanding most everything else in crypto.

But most of that "everything else" is ... Ethereum. And in just a few hours Ethereum is slated to undergo its most important upgrade in history.

So what does Ethereum's upgrade unlock? Well, a lot. And if you understand that much, well, guess what? You're as up to date as almost anyone! :)

In what has been dubbed "The Merge," the next most popular blockchain behind Bitcoin, Ethereum, is set to switch from a proof-of-work to a proof-of-stake mechanism to secure its blockchain. Essentially, that means the network is breaking even further from Bitcoin in the way it functions.

Ethereum co-founder Vitalik Buterin has long discussed the idea that proof-of-stake could help Ethereum improve its network. (Source: Getty Images)

Now, unlike Bitcoin, which will continue to be run by "miners," or people who run electricity-consuming computers solving complex equations — Ethereum will run its network in a different way. Instead, by upgrading, Ethereum will now use about 99% less electricity.

Without going too far into technical detail, the upgrade is pretty important because it shifts away from Bitcoin's model of having miners compete with each other every 10 minutes to win the right to add a block of transactions to the Bitcoin blockchain. Instead, Ethereum validators will be randomly selected based on the amount of ethereum they have "staked" under their control. In this model, it reduces the energy output by not having a bunch of people "compete" to win by running computers preemptively — but instead by selecting a validator at random and letting them add a block to the chain.

Obviously, the implications are quite large. For starters, that now negates a huge knock on crypto as it being "environmentally unfriendly." Second, it also unlocks a way for people who hold ethereum to natively earn a bit more natural yield on their ethereum.

The other big aspect of The Merge is that the fees miners previously earned aren't as large. As such, a portion of the amount of ethereum used in transactions on the network, known as "gas fees," is now burned each time someone completes a transaction. That now makes ethereum deflationary relative to its pre-Merge issuance, and, in theory, would be price supportive.

"The supply of [ethereum] tokens may turn outright deflationary," Forex.com Global Head of Research Matt Weller said. "The new security system will require far less issuance to maintain security, and combined with last year’s EIP-1559 upgrade that burns a portion of transaction fees, the annual net new issuance of ETH tokens will drop from the current 2.5% and may even decline. To put it simply, this week may mark the largest suppply of Ethereum we ever see, if The Merge goes smoothly."

If you want to earn a little more about The Merge in video format, you can check out a pretty interesting run through from Finematics here.

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