The massive overhaul of Ethereum known as the Merge has finally happened, moving the digital machinery at the core of the second-largest cryptocurrency by market value to a vastly more energy-efficient system after years of development and delay.

It was no small feat swapping out one way of running a blockchain, known as proof-of-work, for another, called proof-of-stake. “The metaphor that I use is this idea of switching out an engine from a running car,” said Justin Drake, a researcher at the non-profit Ethereum Foundation who spoke to CoinDesk before the Merge happened.

CoinDesk Special Coverage: The Ethereum Merge

The payoff is potentially gigantic. Ethereum should now consume 99.9% or so less energy. It's like Finland has suddenly shut off its power grid, according to one estimate.

Ethereum’s developers say the upgrade will make the network – which houses a $60 billion ecosystem of cryptocurrency exchanges, lending companies, non-fungible token (NFT) marketplaces and other apps – more secure and scalable, too.

Read more: Monitoring the Merge: What a Successful Ethereum Upgrade Will Look Like

When the Merge officially kicked in at 6:43 a.m. UTC, more than 41,000 people were tuned in on YouTube to an "Ethereum Mainnet Merge Viewing Party." They watched with bated breath as key metrics trickled in suggesting that Ethereum's core systems had remained intact. After about 15 long minutes the Merge officially finalized, meaning it could be declared a success. The price of ETH – whose current market value near $200 billion makes it the second-largest cryptocurrency after bitcoin (BTC) – was largely flat after the Merge.

The update, which ends the network’s reliance on the energy-intensive process of cryptocurrency mining, has been closely watched by crypto investors, enthusiasts and skeptics for the impact it is expected to have on the wider blockchain industry.

Mark Cuban, investor and billionaire owner of the Dallas Mavericks basketball team, told CoinDesk he would be “watching [the Merge] with interest like everyone else,” pointing out that it might make ETH, the network's native token, deflationary.

The idea was there from the start that Ethereum would eventually make the switch to proof-of-stake. But the transition was a complicated technical effort – an endeavor so risky that many doubted it would happen at all.

"There’s a part of me which hasn’t completely realized that this is actually happening,” Drake said. “I’m somewhat in denial, you know, because I’ve trained myself to just expect it to happen in the future.”

The update’s complexity was compounded by the fact that it may have been one of the largest open-source software endeavors in history, requiring coordination across dozens of teams and scores of individual researchers, developers and volunteers.

Tim Beiko, an Ethereum Foundation developer who played a key role in coordinating the update, said to CoinDesk, “I think the Merge can genuinely get those people who were interested in Ethereum, but skeptical of the environmental impacts, to come and experiment with it.”

Goodbye, miners

In 2008, Bitcoin introduced the world to the idea of a decentralized ledger – a single, immutable record of transactions that computers around the world could view, alter and trust without the need for intermediaries.

Ethereum, introduced in 2015, expanded upon the core concepts of Bitcoin with smart contracts – or computer programs that effectively use the blockchain as a global supercomputer, recording data onto its network. That innovation was the essential ingredient behind decentralized finance (DeFi) and NFTs – the main catalysts of the most recent crypto boom.

The Merge retires Ethereum’s proof-of-work system, where crypto miners competed to write transactions to its ledger – and earn rewards for doing so – by solving cryptographic puzzles.

Most crypto mining today happens in “farms,” though they may be more aptly described as factories. Picture massive warehouses lined with rows of computers stacked on top of one another like shelves of books at a university library – each computer hot to the touch as it strains to pump out cryptocurrency.

This system, which was pioneered by Bitcoin, is what caused Ethereum to guzzle so much energy and is responsible for fueling the blockchain sector’s reputation as an environmental menace.

“My daughter and I spoke about NFTs a few months ago,” recalled Ben Edgington, a product leader at the Ethereum research and development firm ConsenSys. “At the dinner table I rather foolishly mentioned some NFT projects, and she was yelling at me, ‘How can you boil the oceans with this nonsense? This is terrible. I can't believe that you do this for a living.’”

Edgington, who began his career researching climate science before eventually landing in crypto, understood where his daughter was coming from. “Rightly or wrongly, she'd absorbed a very toxic environmental narrative,” he said. “I mean, it's kind of hard to defend ‘stickers for grownups’ that emit, by some estimates, a megaton of [carbon dioxide] a week.”

Hello, stakers

Ethereum’s new system, proof-of-stake, does away with mining entirely.

Miners are replaced by validators – people who “stake” at least 32 ETH by sending them to an address on the Ethereum network where they cannot be bought or sold.

These staked ETH tokens act like lottery tickets: The more ETH a validator stakes, the more likely one of its tickets will be drawn, granting it the ability to write a “block” of transactions to Ethereum's digital ledger.

Ethereum introduced a proof-of-stake network in 2020 called the Beacon Chain, but until the Merge it was just a staging area for validators to get set up for the switch. Ethereum’s transition to proof-of-stake involved merging the Beacon Chain with Ethereum’s main network.

According to Beiko, the energy consumption of proof-of-stake is “not even a rounding error in terms of environmental impact.”

“Proof-of-stake is like running an app on your MacBook,” he said. “It's like running Slack. It's like running Google Chrome or running Netflix. Obviously, your MacBook plugs into the wall and uses electricity to run. But no one thinks about the environmental impact of running Slack, right?”

Edgington pointed to the environmental impact of the Merge upgrade as the benefit he is personally the most excited about. “I feel very proud, you know, that I'll be able to look back and say I've had a role to play in removing a megaton of carbon from the atmosphere every week. That's something that meaningfully affects my family and others,” he said.

New incentives

Rather than a single piece of open-source software, the Ethereum network is better understood as a nation-state – a kind of living organism that comes together when a bunch of computers talk to one another in the same language, all following an identical set of rules.

Ethereum’s new system introduces a new set of incentives for the people operating these computers to follow the rules as written, thereby securing the ledger from any unwanted tampering.

“Proof-of-work is a mechanism by which you take physical resources and you convert them into security for the network. If you want your network to be more secure, you need more of those physical resources,” Beiko explained. “On proof-of-stake, what we do is we use financial resources to convert to security.”

Although Ethereum had thousands of individual miners operating and securing its proof-of-work network, computers from just three mining pools dominated a majority of the network’s hashrate, a measure of the collective computing power of all miners.

If a few of Ethereum’s big mining firms colluded to amass a majority of the network’s hashrate, they would have been able to execute a so-called 51% attack, making it difficult or impossible for anyone else to update the ledger.

In proof-of-stake, the amount of ETH one stakes – not the amount of energy one expends – dictates control over the network. Proof-of-stake boosters say this makes attacks more expensive and self-defeating: attackers can have their staked ETH slashed, or reduced, as punishment for trying to harm the network.

Not everyone buys into the proof-of-stake hype. There are no signs that Bitcoin, for instance, will ever abandon proof-of-work – which proponents insist remains the more battle-tested and secure system.

And although control of the Ethereum network will no longer be concentrated in the hands of a few publicly traded mining syndicates, critics insist that old power players will just be replaced by new ones. Lido, a kind of community-run validator collective, controls over 30% of the stake on Ethereum’s proof-of-stake chain. Coinbase, Kraken and Binance – three of the largest crypto exchanges – own another 30% of the network’s stake.

Skepticism around proof-of-stake fueled Chandler Guo, a prominent crypto miner, to announce in the lead-up to the Merge that he would launch a fork of Ethereum’s old proof-of-work chain – a clone of Ethereum’s blockchain that hums along using the old miner-based mechanism.

Ethereum’s core developers have generally derided proof-of-work forks as sideshows and scams, but Guo’s “ETHPOW” effort and others like it have gained modest traction in certain corners of the crypto community.

Read more: Ethereum Proof-of-Work Forks: Gift or Grift?

Trading the Merge

In crypto markets, the Merge had become an object of speculation since at least mid-July, with traders initially viewing the event as a catalyst for a steep rally in the price of ETH. The market for ETH options started pricing in post-Merge gains, a welcome respite following the crash in digital-asset markets earlier in the year.

The prospect of a fork of the Ethereum blockchain by irate crypto miners spurred a wave of new activity, this time as traders tried to lock in value from the theoretical airdrop of a new “ETHPOW” token.

In general, it is impossible to predict with certainty how the markets will react to a successful Merge. The upgrade has been on Ethereum’s roadmap since its inception, so there’s the possibility that it has already, by-and-large, been priced in by the market.

“I think if you asked me maybe about three weeks ago, I would say that not only is it priced in, it’s overly priced in,” said Kevin Zhou of Galois Capital. “Now the market is roughly 70/30 in favor of this being a positive event for ETH.”

Read more: Ether Lags Bitcoin as Ethereum Merge Nears; Here’s Why

What’s next?

"This is the first step in Ethereum's big journey towards being a very mature system, but there are still steps left to go," said Vitalik Buterin, Ethereum's co-creator, as he reflected on the Merge during Thursday's viewing party. He went on to mention Ethereum's relatively high fees and slow speeds, which were not addressed by the update, but remain as much a barrier to growing the network's user base as environmental concerns ever was.

Buterin, Ethereum's most visible figurehead, previously outlined a set of next steps for the network that includes “sharding” – a method that should help address the network’s sluggish transaction times and high fees by spreading transactions across “shards,” like adding lanes to a highway.

Read more: Ethereum After the Merge: What Comes Next?

That upgrade was initially slated to accompany the transition to proof-of-stake, but it was deprioritized given the success that third-party solutions – called rollups – have had in solving some of the same issues.

Rollups foreshadow the likely future for Ethereum development, where community solutions – rather than updates to Ethereum’s core code – play the primary role in expanding the chain’s capabilities.

For Buterin, the Merge is just the beginning. "To me, the Merge just symbolizes the difference between early stage Ethereum, and the Ethereum we've always wanted ... to become," he said on Thursday's live stream. "So let's go build out all of the other parts of this ecosystem and turn Ethereum into what we want it to be."

UPDATE (Sept. 15, 07:23 UTC): Adds information throughout.

UPDATE (Sept. 15, 07:56 UTC): Updates ETH price information.

UPDATE (Sept. 15, 08:06 UTC): Adds quotes from Vitalik Buterin