There have been some exciting developments this year in the cryptocurrency community and in particular with Ethereum.
In March 2021, Vitalik Buterin announced that he would be implementing a new system called “Proof-of-stake” into his Ethereum code for his next major update, called “combined”. The merger has already started with a specific node running on PoS, but at least it will launch until 2022.
So, what is being said here and why should anyone care?
What is Ethereum Merge?
As mentioned above, there is currently no official name given for the upgrade or even a concrete timeline of when the changes will take place. However, some people have suggested names such as “Phase Zero,” which refers to Ethereum’s current situation where miners can still run their own validators using energy sources like electricity and graphics cards. This means that instead of hashing blocks by solving complex mathematical problems, the validator node verifies transactions by tracking balances across multiple blocks.
Compared to Bitcoin, whose network uses mining through a PoW mechanism, Ethereum is known for being slower due to the long time to confirm each transaction.
However, some argue that Ethereum’s slow speed also allows for more freedom and opportunity to use smart contracts because it doesn’t wait for confirmation day before sending money around the world. And while many developers may disagree, it seems Ethereum could benefit greatly from switching to PoS so users don’t have to wait hours for transactions.
Another reason behind the switch is a security issue. Because all networks don’t just rely on the PoW consensus method, hackers can’t easily attack individual wallets without having access to a lot of computing power. However, attackers have to compromise hundreds of thousands of validation machines simultaneously in order to successfully hack or steal funds.
Furthermore, if hackers could perform 51% of attacks against validators, they would theoretically be able to control the majority of tokens staked into them, essentially having their own network. Because each node stores a copy of everything stored in the chain, if someone has enough control over that copy, then you have a distributed denial of service (DDoS) attack.
However, when the first phase is launched, the main focus will be on increasing scalability. To date, the Ethereum platform hasn’t looked very much outside of decentralized finance applications and dApps. When compared to other cryptocurrencies like Litecoin that have surpassed its multi -billion dollar market cap, Ethereum is barely able to score a 5 percent market share. Although this is not necessarily bad, it is useless if the technology is designed to be a better size than anything else. With the implementation of PoS, Ethereum aims to address this issue directly.
This brings us back to Phase 0, the current stage of Ethereum now …
Ethereum is currently transitioning from Proof-of-Work (PoW) to Proof-of-Stake (PoS)
For context, a PoW system can be used by using computer hardware such as GPUs and ASIC devices to generate a hash that is used to create new blocks in the chain. Once the hash passes the validation check, it will create a new block that will be added to the chain forever. These types of algorithms are not very efficient because they require a lot of processing time and energy just to validate a single block. As a result, Ethereum has become very inefficient for larger DApp networks that require fast transaction times.
On the flip side, the PoS protocol aims to fix the problem by using the original token asset rather than the actual computing process. For example, tokens generated during various phases of the validation process can be exchanged between validators depending on whether they meet certain criteria. Users simply stake ETH/ERC20 tokens based on how often they want to participate in validation.
However, validators can get rewards that provide incentives to keep the network secure. Not only are validators paid to hold tokens, but they will also receive additional compensation for participating in validation tasks. What makes it interesting is that validators don’t directly compete anymore. However, they can choose to participate in validation at any time and decide how much effort to put into it. It’s the same as betting winnings after winning the lottery. You might bet less on a game show, knowing you’ll probably lose anyway.
It is important to note that we have not yet achieved full adoption of this model. According to statistics published earlier this month, only 1.5 percent of total addresses are on PoS platforms compared to 99.5 percent on PoW networks. There are two reasons for this disparity — first, generally private ICO investors are more likely to invest in PoW systems because they offer higher returns. Second, because PoS systems use ETH tokens as collateral, owners tend to sell ownership immediately after receiving interest payments. Conversely, individuals on the PoW platform invest more income to buy the expensive equipment needed to mine coins.
But despite the recent setbacks, it appears that Ethereum is determined to move forward by upgrading its infrastructure. Speaking with Cointelegraph, Vlad Zamfir, one of Prysm’s founders, said he believes that Ethereum’s transition to adopting PoS will eventually result in greater transparency and efficiency. He explains that, “a lot of people believe it [PoS] will help improve governance, reduce the risk of centralization, improve privacy, etc., “he added,” all is well! “
Prysm, along with the Tendermint Cosmos protocol, includes a number of hard -working projects to develop workable alternatives to Ethereum. Other notable examples include Cardano, EOS, Lisk, Polygon Chain, Zilliqa, Polkadot, Algorand, Binance SmartChain, Hashgraph, Avalanche, Tezos, Interchain, Terra, Orchid, Solana, SiaCoin, Helium, StorjX, Aethereum Classic, and Substratum Protocol.
According to Joseph Lubin, Consensys founder and Co-Founder of Ethereum, the upcoming changes will allow Ethereum to operate more efficiently and securely as well as provide faster speeds for smaller DApps. Furthermore, Lubin states:
“[T]the biggest challenges facing the web today are scale & interoperability-both of which Ethereum excels. We plan to continue to focus on efforts to make Ethereum faster, cheaper, and more accessible to everyone.
Lubin continued speaking with CNBC saying:
… we see ourselves as the best way to achieve true global digital ownership. We think this vision will be realized as soon as possible, especially when we start migrating to sharding and moving away from the old data structures we built 10 years ago. That’s what I mean by ‘transition.’
And although the exact details of the merger remain unclear, it is certainly promising. After all, there is a lot of room for improvement in terms of building scalable solutions that can handle millions of active users every day. In addition, the fact that Ethereum wants to adhere to the standards set by other leading cryptos such as Ripple and Stellar shows that the project is taking steps to ensure sustainability and compatibility.
The only thing that is clear, the community is excited about the upgrade possibilities that await them. In an interview with CNBC, Lubin expressed excitement about the possible future that lies ahead of the blockchain space in general. He explains that, “I’m very excited about the advancement of this technology, and hope to see results for the entire ecosystem.”
Why Join a Cryptocurrency?
You may be wondering how exactly this upgrade will affect existing token holders. Yes, technically nothing happens unless the user decides to change their own token. Only those who are willing to change their tokens will experience a difference in performance. Now, most tokens are locked in cold storage accounts, meaning they haven’t moved through the various stages of the network. Even worse, some owners may not touch the token anymore.
If you have a token on the Ethereum mainnet, you will be automatically redirected to a newer version of the blockchain. Then again, it is absolutely optional to move to a newer version. Just because you have a token doesn’t automatically qualify you to get the benefits associated with the new rules.
To understand how the combination works, let’s remove the three main components:
- Validator – A person who maintains the integrity of the network. He chose a proposal submitted by someone else.
- Proposal-Voting procedures that determine whether updates occur in the network.
- Block production – A block contains information about a particular transaction in a block.
Under normal circumstances, all networks operate on a hybrid model in which PoW and PoS can be used simultaneously. To prevent malicious activity, miners are randomly selected to generate blocks. Miners who contribute more votes than average get priority and produce blocks first. After that, the validator is selected to approve or reject the newly generated block. Finally, voters are responsible for selecting candidates to propose a new set of rules. This random selection prevents the centralized authority from controlling the voting results. Currently, Ethereum uses a dual-layer architecture. Layer One handles basic operations including block creation, gas costs, etc., Layer Two deals exclusively with proposing new rules and determining optimal conditions for validators managing the overall network. By separating these layers, the system becomes more resilient.
This guest post was written by CryptoCrooks.com tim.
Disclaimer: the information contained herein is provided without regard to personal circumstances, so it should not be construed as financial advice, investment recommendations or offers, or requests for any transactions in cryptocurrencies.