The Ethereum network’s long-awaited transition from Proof of Work (PoW) to Proof of Stake (PoS) has been successfully completed. Known as The Merge, it is one of the biggest events in the history of cryptocurrencies. A new chapter in Ethereum’s history has opened, helping the network reach its vision of being the world’s computer.
As part of the Ethereum ecosystem, we at SwissBorg are very excited about The Merge and all that it portends. Both Pow and PoS are mechanisms designed to keep the transactions on the blockchain secure. The main problem facing the old Proof of Work system was its energy consumption. The less carbon-intensive Proof of Stake was conceived as the solution and a major upgrade to Proof of Work for validating transactions. It is the sustainability of the Proof of Stake system and how it will enable the growth of the Smart Contract economy that makes this upgrade the most important one since the creation of the Ethereum network. The move to PoS is expected to reduce energy consumption by 0.2% worldwide according to Vitalik Buterin the founder.
- PoS encourages scalability and security of the Ethereum network while also enhancing its decentralization.
- PoS is more energy efficient compared to PoW where miners expend a lot of electricity to get their work done.
- Anyone can participate since no expensive investment in hardware is required.
- Ethereum will burn the base transaction fees, making it a deflationary currency.
- The prices of Graphics cards will go back to normal, as the demand driven by ETH mining will lessen.
The second largest cryptocurrency by market capitalization and the leader in the NFT space, Ethereum and the smart contract economy has a significant role to play in the development of Web3 individual ownership of data.
“Ethereum has established itself as the blue-chip blockchain network powering this trust dynamic ... the broader internet is likely to pay Ethereum handsomely for this service .”
Important milestones to keep an eye on:
The Shanghai Upgrade
The Shanghai Upgrade is the next step for Ethereum’s renewed functioning. Said to be coming into play in 6-12 months, it will notably enable stakers to withdraw their staked ETH. This has generated some speculation on the impact it would have on Ethereum’s price, generating a trending topic named the “Firesale”.
PoW fork
Going from PoW to PoS leaves a lot of Graphics cards “Ethereumless”. Miners, and mining companies, have therefore started pushing their own currencies resembling the PoW version of Ethereum, and enabling willing investors to stay on a PoW chain.
Sharding VS L2 rollups - Learn more here
Initially, Ethereum was focusing on making their currency much more scalable. This was supposed to be enabled with sharding technology. However, as layer’s 2 gained in popularity, this priority was shifted away and replaced with moving from Proof of Work to Proof of Stake. We can therefore still expect, or hope to see a more scalable Ethereum in the future, but it might differ from the method they originally communicated (to a better one).
Summing it all up
The Merge is not only a Milestone for Ethereum, but also for Crypto. It shows to the world that cryptocurrencies aren’t inanimate programs that can’t be adapted. Moving to Proof of Stake will likely help with the general acceptance of cryptocurrency because it removes one of the barriers to mass adoption which is high energy consumption of PoW mining.
We’re hopeful that the scalability of this Blockchain will also be improved. The future certainly is bright!