With the Merge, the world’s most widely used blockchain network Ethereum has moved from Proof-of-Work to PoS (Proof-of-stake) consensus. In the past, only miners from major crypto firms became validators. The Merge decentralizes the process, opening it to ordinary people. As of 15th Sep, the process is complete. Now, what’s left after the completion of one of the five-stage processes of Vitalik Buterin’s Endgame?
What Did We Get Out Of The Merge?
The Merge occurred at the Terminal Total Difficulty of 58750000000000000000000. It was completed on Thursday at Block 15537393. Thus, officially, the network does not depend on the PoW mechanism. What is the advantage of this change?
- The essential change brought in by the Merge is the reduction in energy consumption by 99%. It was also mentioned that this Merge would reduce worldwide electric usage by 0.2%.
- Developers and users can scale their operations tremendously, which would have been unsustainable a month ago. This will also, in turn, lead to mass adaptation of this ecosystem soon.
- The second modification is the PoS shift that reduces ETH issuance, making ETH a deflationary asset. After the Ethereum Merge, the value of ETH jumped to $1,635.
- This Merge is good news for environmentalists as the network no longer relies on heavy mining hardware that sucks energy.
- With PoS, the blockchain might become more susceptible to government censorship and intervention.
- Ethereum’s computing powers will be used in different genres of world growth. The general population might one day use blockchain-run apps for various aspects of their daily life.
When Ethereum’s PoS research started in 2014, it was not a single-step process. According to the co-founder, it was like inventing a new universe that abides by unique laws. In PoW, all the functions utilized tangible functionalities like computers, electricity, and hardware components. However, this new model is virtual in every aspect. This virtual aspect increases the energy efficiency by 99.95%, making way for the next steps in the scaling process.
Sharding – The Surge
The next step is 2023’s surge, which relies on sharding for increasing scalability. This stage will enable to blockchain to store and access information. Ethereum Foundation commented that sharding separates the database horizontally to delegate the workload. The sharding will be utilized along with layer-2 rollups, thereby splitting information across the network.
This will reduce congestion in the network and increase the number of transactions occurred in one second. This decentralization would make the database more extensive and reduces validators’ work of storing network data. Such storage requires powerful and expensive hardware. Thus, an average user can run the clients or nodes from his device, like his PC or mobile phone. Due to its extensive decentralization, the network would become more robust.
The third stage is the Verge, which would introduce the Verkle trees. Verge is expected to be initiated after a few years from Merge. This stage will improve the node size and data storage optimization. Verkle trees are similar to Merkle trees which can total all the transactions in the block and offer proof of the entire set for any user checking its authenticity. The main advantage of using Verkle trees is that they are very efficient in the proof size.
The developer admitted that the cryptography would be complicated, but the stateless clients would be viable since the proof’s data size would be significantly reduced.
Any spare historical information will be removed during this stage. This process reduces network congestion. The resulting network would handle about 100K transactions every second. Moreover, it also reduces the data amount needed to be saved by the validators.
It is the final stage which involves miscellaneous upgrades.
Concerns Regarding Ethereum Merge
Every new invention or alteration never misses the criticisms and problems. The same is true for the Ethereum Merge too.
Staked ETH Misconception
Stakers have to commit 32 ETH if they wish to become complete validators. It is a common understanding that after the Ethereum Merge, the staked ETH will be removed. This is a significant concern as 32 ETH amounts to around $47K, and the uncertainty of it is quite a red flag. In reality, after the Shanghai Update, the validators can withdraw their staked ETH. The main reason is to ensure the network’s stability throughout the process. This update is expected to happen in the next year. Validators can also receive compensation for transaction processing. This amount will be added to the non-staking accounts.
The company also mentioned that it has a forked version of ETH-based ETH. If, after the Proof of Stake consensus, a significant number of people support the previous version, the company would accept the decision of the free market. Accordingly, ETHW core, a group for Proof-of-work miners, has announced that it would initiate the hard fork after 24 hours from Merge.
The Problem Of Government Censorship
Depositing or staking 32 ETH for activating the validator software is not a simple task for every commoner. Thus, primarily big corporate firms are more likely to be the validators. The 32 ETH should be deposited during writing, which is not a simple task for any individual. Before the Merge, 64% of the total staked ETH belonged to just five enterprises.
|Entity Name||Percentage of staked ETH|
|Remaining ETH by others||7.42|
Since it is just a handful of players, governments can easily puppet them. When the validator nodes identify a sanctioned address, they can slash rewards and kick it out of the system. Thus, other businesses cannot interact with it. Therefore, if these large institutions decide, the validators might exclude or filter out sanctioned transactions. These transactions would be found only in later blocks (if some validators do not comply), and censorship will be just temporary. Many users have showcased that they will leave if there is a chance of permanent censorship. Many developers in the Ethereum community also voiced that they would consider this network a failure if permanent censorship becomes possible. However, people also believe that the Ethereum community can fight off this base-layer censorship.
When US government bodies issued crypto mixer Tornado Cash, most entities complied; thus, the sanctioned addresses could not access the service or products.
The Green Crypto World
There has been much criticism for cryptocurrencies, and the energy-hungry Ethereum was an easy victim to the environment warriors. In the past, the central banks and sovereign wealth funds have voted down Ethereum for direct investments due to energy consumption. Thus, you can expect new investments into the network soon. Moreover, the negative propaganda about how cryptocurrency is terrible for the environment will finally fade. Since the Ethereum Merge now satisfies the ESG mandates, several investors will be open to new horizons.
There are a lot of changes and avalanche effects introduced by the Merge, and soon the same would be followed during the other steps of this Endgame. Thus, investors, developers, and other players should keep their eyes and ears wide to make sure they can make the right move based on the new and dynamic information.