blockchain, will change the way it processes transactions, a move that will (hopefully) make the network more efficient, sustainable and scalable.
The ‘Merge’, as it has been dubbed, will see Ethereum – the blockchain on which the majority of smart contracts and non-fungible tokens (NFT) live – transition from a ‘proof-of-work’ to a ‘proof-of-stake’ protocol.
Before diving deeper into the Merge, it’s important to understand these two crypto consensus mechanisms.
Like Bitcoin, Ethereum uses proof of work (PoW), which requires users to solve complex mathematical problems to validate transactions and keep the network secure.
Although this method is effective, it isn’t very efficient. People who solve these problems, known as miners, must spend massive sums on equipment and electricity to be able to do so, and earn rewards.
Proof-of-stake (PoS), on the other hand, does away with energy-intensive mining altogether. Instead, validators stake their own crypto assets in exchange for the chance to validate new transactions on the blockchain. An initial winner is selected at random to validate a new block, and other validators can attest to its accuracy.
Since this system randomises who gets to validate transactions, rather than using a competition-based mechanism like proof-of-work, it uses much less energy.
How will the Merge happen?
The plan consists of three main phases. The first of these is the launch of the Beacon Chain. This is a PoS blockchain that the Ethereum network will switch to when it transitions out of PoW.
The Beacon Chain went live in December 2020 and runs parallel to the main Ethereum chain, which is called Mainnet.
In the second phase the Mainnet and the Beacon Chain will combine and Ethereum will begin operating as a PoS blockchain.
The final phase of the upgrade to “Ethereum 2.0” is expected some time next year. It will enable a process called ‘sharding’ which would significantly reduce data congestion and transaction fees by splitting the Ethereum blockchain into several smaller chains for different parts of the database.
When that happens, Ethereum will be able to handle thousands of transactions per second – compared to the 7-15 per second it can handle now.
What are the implications?
If Ethereum successfully transitions from PoW to PoS it will prove that it’s possible to have a decentralised and permissionless network that’s also energy-efficient. This would give a huge boost to Web3 projects aiming to build on Ethereum.
Despite the crypto winter, there is currently a lot of interest in Web3. Venture investment into Web3 has been accelerating, with many developers continuing to enter the blockchain space. ET reported earlier this week that despite the crypto bloodbath, early-stage Web3 founders from India continue to attract funding from investors.
“This time is very crucial to look at companies that are solving long-term problems,” Singhal said. “Even though the market has come down and FOMO (fear of missing out) has reduced, no longer it is about who is raising what amount; it has become about building for the users and solving actual problems.”
Perhaps the Merge couldn’t have come at a better time.
Top Stories By Our Reporters
Fintech in the news
SBM Bank bars fintechs from onboarding new users: State Bank of Mauritius (SBM) India, one of the most active partner banks for fintech firms, has told its card-fintech partners to immediately stop onboarding new users for its co-branded credit prepaid card product. This has impacted several startups in the space, including Slice, Uni and LazyPay.
Uni stops servicing existing users: BNPL fintech startup, Uni, has temporarily stopped servicing its existing card users bringing its card services to a screeching halt. This comes after the company had stopped issuing new cards in June, after RBI’s communication to industry stakeholders, which barred the loading of prepaid payment instruments (PPis) through credit lines.
Razorpay enters offline payments with Ezetap buy: Fintech unicorn Razorpay has acquired Ezetap in a cash-and-equity deal, marking its entry into the offline payments space. Sources told us Razorpay has paid $150 million for the deal, of which $100 million will be cash payouts to Ezetap’s shareholders.
Industry leaders doubt fintech’s profitability in next few years: Industry leaders remain sceptical about the profitability of fintech firms over the next two to three years, according to a new report from venture capital firm Matrix Partners India and Boston Consulting Group (BCG).
PhonePe plans fresh ecommerce foray via ONDC: Digital payments company PhonePe is scripting a detailed plan to fuel its ecommerce plans as it integrates with the government’s Open Network for Digital Commerce (ONDC).
Dunzo shifts gears as quick commerce hype settles: Reliance Retail-backed quick commerce platform Dunzo is shifting gears on its growth momentum after a hyperactive first half of the year in which it scaled operations of its 15-20 minute grocery delivery service Dunzo Daily.
‘Mini Cloudtails’ mushroom on Amazon after largest seller shuts down: Even as Cloudtail, the erstwhile largest seller on Amazon India disbanded its operations, a bunch of new seller outfits that have been formed for the ecommerce major show a common pattern.
Beauty & personal care drives ecommerce growth: Ecommerce sales volume grew 69.4% in FY22 compared to 44% in FY21, according to a report by Unicommerce in collaboration with Wazir Advisors. The beauty and personal care category continued to drive this growth, with a 143% increase in volumes year-on-year.
Softbank in news
SoftBank Vision Fund India head Sumer Juneja to also oversee Europe, Middle East: SoftBank Vision Fund’s managing partner Sumer Juneja and India head has been given the additional responsibility of overseeing Europe, the Middle East, and Africa (EMEA), as per an official communication from the firm on Friday.
Ola to launch electric car in 2024; CEO says ride-hailing biz is profitable: Ola Electric said on Monday it will launch its first electric car in 2024. At a press briefing in Bengaluru, coinciding with celebrations for India’s 75 years of independence, the company also introduced the S1, a sub-Rs 1 lakh version of its maiden electric scooter, the S1 Pro.
Big VC funds turn bullish on EV startups amid funding slowdown: Mainstream venture capital (VC) funds have increasingly deployed funds in the electric mobility space even as financing in the wider startup ecosystem has witnessed a slowdown over the past few months.
ET Ecommerce Index
We’ve launched three indices – ET Ecommerce, ET Ecommerce Profitable, and ET Ecommerce Non-Profitable – to track the performance of recently listed tech firms. Here’s how they’ve fared so far.
ETtech Done Deals
■ Logistics aggregator Shiprocket has approved a fundraise of Rs 259 crore ($32 million) from existing investors Temasek, Lightrock India and others at a valuation of around $1.3 billion, regulatory documents sourced from Tofler showed.
■ Nandan Nilekani’s Fundamentum bags $227 M in second fund: Nandan Nilekani’s venture fund Fundamentum Partnership has raised its second fund with $227 million in capital, largely sourced from local entrepreneurs and their personal investment offices.
■ Yes Bank has invested an undisclosed amount in Venture Catalysts Group Fund — an integrated startup incubator offering funding, mentorship and networking to startup founders. Founded in 2015 by Apoorva Ranjan Sharma, Anuj Golecha, Anil Jain, and Gaurav Jain, Venture Catalysts deploys investments between $250,000 and $1.5 million in early-stage startups. So far, it has backed over 110 startups including BharatPe and Beardo.
■ Stride Ventures closes its $200 million India Fund II: Venture debt firm Stride Ventures has closed its $200 million India Fund II a year after closing its first fund amid soaring demand for debt funding among startups. The fund saw participation from banks, family offices, corporate treasuries and private equity funds.
■ Rusk Media, an Indian digital entertainment company, has raised $9.5 million in an extended series A funding round, led by Seoul-based DAOL Investment and Audacity Ventures. The round also saw participation from existing investors such as InfoEdge Ventures, Mistry Ventures, Nazara Games and Nodwin Gaming.
PM hails India’s tech growth on I-day
India’s techade is here: PM Modi in Independence Day speech: Prime Minister Narendra Modi on Monday emphasised that this is ‘India’s techade’ while addressing the nation in his Independence Day speech at the Red Fort.
The Digital India Act
Digital India Act to cover social media, OTT, metaverse and more: The Digital India Act (DIA), the upcoming digital regulatory framework, will cover crimes on Twitter, Facebook, and the metaverse, and will monitor OTT platforms like Netflix and Amazon for content that could spread misinformation or incite violence, two people aware of the development told us.
Cofounder and CEO of CoinSwitch Kuber, Ashish Singhal
Early-stage investors still betting on Web3 solutions: CoinSwitch: Despite the bloodbath in the cryptocurrency market and skepticism around the utility of Web3 solutions, early-stage founders from India in this sector continue to attract funding from investors.
Mitigate risk before taking IPO route, says Kris Gopalakrishnan: Mitigate risk before taking IPO route, says Kris Gopalakrishnan: The Indian startup ecosystem, faced with a funding crunch and undertaking layoffs, is going through a “challenging period”, said S (Kris) Gopalakrishnan, Infosys cofounder and chairperson of Axilor Ventures, a fund that backs early-stage startups. In an interview, Gopalakrishnan also welcomed the government’s decision to take a relook at the Personal Data Protection Bill and spoke on a range of other issues.
IT companies delay offer rollouts amid recession worries: Amid concerns over a macroeconomic slowdown, fewer IT employees are juggling multiple job offers and the rejection rates of offers on hand have gone down as well, experts said. This comes after Big Tech companies like Google, Amazon, Microsoft and Apple also indicated a pause in their hiring plans.
Wipro holds variable pay for June quarter for mid-level, senior employees: Wipro has decided to hold back variable payouts to its mid-level and senior executives for the June quarter due to pressure on its operating margin, people aware of the matter told us.
Despite lower projected attrition, margin impact to remain high for IT firms: Indian IT service providers will face margin pressure unless they can add better pricing to the already projected benefit of lower attrition rates, experts said.
Early-stage investors still betting on Web3 solutions: Despite the bloodbath in the cryptocurrency market and skepticism around the utility of Web3 solutions, early-stage founders from India in this sector continue to attract funding from investors.
In other news
Global news media startup Semafor open to India partner for local edition: In January, former Bloomberg Media chief executive Justin Smith said he was leaving his high-profile job to launch a news startup that would serve “unbiased journalism” to a global audience. Seven months later, the media venture – Semafor – has racked up $25 million in seed funding and has hired more than 35 high-profile journalists, business executives, product and technology professionals.
Foxconn chairman Liu spots ‘upgrade in govt efficiency’: Taiwan’s Foxconn will expand in India amid improvements in the overall industrial environment and an “upgrade in government efficiency,” chairman Young Liu said, underlining the South Asian nation’s growing importance for the world’s largest contract manufacturer amid tensions with China.