Ethereum 2.0, the second largest cryptocurrency by market capitalisation, has successfully finally moved to its proof-of-stake consensus mechanism.
In doing so it will reduce its energy consumption by a whopping 99.5% compared to its previous proof-of-work system.
Per TheVerge, the enormous pollution reduction comes from a change in how Ethereum users earn new tokens. With The Merge, Ethereum is getting its consensus mechanism that is proof-of-work that uses vast amounts of computing power to validate blocks of new transactions. With PoW, Ethereum required cryptocurrency miners to solve computational puzzles, an extremely energy-intensive process, in order to validate new blocks on the chain and earn new tokens in return.
Now, Ethereum uses a new mechanism called proof-of-stake that gets rid of puzzles and mining. Instead, validators need to stake some of their tokens for a chance to validate new blocks of transactions and be rewarded with tokens in return.
As a result, it has been one of the most powerful catalysts in cryptocurrency history.
On Sept. 15 at 06:42:42 UTC at block 15,537,393, the much anticipated Merge saw the Beacon Chain’s consensus layer merge with the Ethereum mainnet execution layer at the Terminal Total Difficulty of 58,750,000,000,000,000,000,000, meaning the network will no longer rely on a proof-of-work (PoW) consensus mechanism.
Following the Merge, Ethereum immediately pumped to around $1,630-$1,650/USD for a little bit before a “sell the news” event seemingly took place, with Ethereum just trading below $1,500/USD as of writing.
Ethereum Co-Founder and leader Vitalik Buterin was quick to celebrate the historical success:
When asked if he was excited about the Merge, Buterin responded that he is “absolutely excited about being exited from the proof-of-work era.”
The co-founder went on to say that the historic transition of the network from proof-of-work to proof-of-stake has been on the agenda for years:
“[It] has obviously been a dream for the Ethereum ecosystem since pretty much the beginning. We started the proof-of-stake research with that blog post on Slosher back in January 2014.”
Speaking to Cointelegraph, StarkWare president and co-founder Eli Ben-Sasson said that “the immediate importance of the Merge is the dramatic effect on energy consumption.”
Ben-Sasson said it also marks “the first step in a process that will lead to exceedingly widespread adoption of Ethereum,” stating:
“It starts a chain reaction of changes. The end result will be the very broad use of Ethereum’s computing power and the general population using blockchain-based apps in many different areas of life.”
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 realised 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 endeavours and transfers of technology 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 sceptical of the environmental impacts, to come and experiment with it.”
How does The Merge exactly improve Ethereum?
Per the Ethereum website, there are a number of key reasons as to why
More Scalable – Ethereum needs to be able to support 1000s of transactions per second, to make applications faster and cheaper to use. This is a huge sticking point right now for Ethereum and has been over the years. Moving to PoS will eliminate the huge controversies over the huge gas fees incurred to users of the blockchain. To scale, Ethereum needs more transactions per second, coupled with more nodes. More nodes mean more security. The shard chains upgrade will spread the load of the network into 64 new chains. This will give Ethereum room to breathe by reducing congestion and improving speeds beyond the current 15-45 transactions per second limit.
More Secure – The protocol will become more secure against all forms of attacks. The planned upgrades improve Ethereum’s security against coordinated attacks, like a 51% attack. This is a type of attack where if someone controls the majority of the network they can force through fraudulent changes. The transition to proof-of-stake means that the Ethereum protocol has greater disincentives against attack. This is because in proof-of-stake, the validators who secure the network must stake significant amounts of ETH into the protocol. If they try to attack the network, the protocol can automatically destroy their ETH.
More Sustainable – The current PoW system in place is terrible for the environment as it requires too much computing power and energy. A movement towards PoS will heavily reduce Ethereum’s environmental impact. Although staking has already been introduced by the Beacon Chain, the Ethereum we use today will run in parallel for a period of time. One system is secured by ETH, the other by computing power. This is until The Merge. With the Beacon Chain up and running, work has begun on merging Mainnet with the new consensus layer. Mainnet will then be secured by staked ETH and far less energy intensive.
A reminder that a common misconception with The Merge is that it will heavily reduce gas fees.
According to a new clarification by the Ethereum Foundation, the network’s upcoming proof-of-stake transitory upgrade — dubbed the “Merge,” — will not reduce gas fees. Regarding this, the Ethereum Foundation wrote:
“Gas fees are a product of network demand relative to the network’s capacity. The Merge deprecates the use of proof-of-work, transitioning to proof-of-stake for consensus, but does not significantly change any parameters that directly influence network capacity or throughput.”
Irrespective, you can note the great positives that come out of this transformation.
With The Merge now complete and a success, the “Surge,” “Verge,” “Purge” and “Splurge” are the final legs left on the Ethereum technical roadmap.
Per CoinDesk, the “Surge” refers to Ethereum introducing systems that will make the network more expandable (scalable) by enabling the creation of layer 2, or companion, products, including sharding and rollups, and therefore making it easier for users to operate on the Ethereum network.
The next phase will introduce Verkle trees, which will also tackle the issue of scalability. Verkle trees are a “powerful upgrade to Merkle proofs that allow for much smaller proof sizes,” according to Buterin. The so-called “Verge” will optimise storage and reduce node sizes. Ultimately, this will make Ethereum more scalable.
The “Purge” aims at reducing, or “purging,” spare historical data. Reducing the amount of historical data will make the process of validating the blockchain more efficient for validators under the new proof-of-stake consensus mechanism. This should minimise network congestion and allow many more transactions to be processed on the blockchain. Buterin said that by the end of this phase, Ethereum should be able to process 100,000 transactions per second.
Once all these previous parts come together, Buterin has described the next part, the “Splurge”, as “the fun stuff.” It aims at making sure that the network continues to run smoothly and that the updates to the protocol in the previous sections do not cause any issues. The tough work of making Ethereum more scalable will have been completed.
Continued times of excitement and success lay ahead for Ethereum 2.0!
