All of us who enjoy ETHLatam in Buenos Aires, and form part of the Ethereum ecosystem, know that an important topic that is being talked about a lot these days is the impending Ethereum Merge (check out what Skylar -member of the Ethereum Foundation- said at ETHLatam in Buenos Aires: video).
“The Merge is coming. This effort we have been working on for the last eight years” said Vitalic last week in the Blockchain Futurist Conference in Toronto Canada.
What does the merge consist of?
Ethereum is a blockchain network that was created with the Proof of work consensus protocol, the same protocol used by other networks such as Bitcoin, but Ethereum’s goal is to change the network to a Proof of Stake protocol. (To learn more about these two consensus protocols you can read our article at this link).
The Beacon Chain (or “consensus layer”) is already live, it has existed as a separate chain from Mainnet (or the “execution layer”) since its genesis. The plan is to swap out the current PoW algorithm on the execution layer today and replace it with the PoS consensus protocol that the Beacon Chain provides. This process is known as The Merge, as it will ‘merge’ the new consensus layer with the existing execution layer and stop the use of mining.
If Ethereum is making this change it is because it considers PoS to be better than PoW.
But is PoS better than PoW in every way? Surely the answer is no. There are some benefits that PoW has over PoS.
PoS has weak subjectivity, which means that new nodes or nodes that were disconnected for a long time, need another trusted node to synchronize correctly. This does not happen in PoW. On the other hand, a PoW attack requires the purchase of millions of HW equipment that cannot go unnoticed. It is therefore very difficult for such an attack to happen without being identified.
Let’s talk about the many advantages of Proof of Stake!
Security: Possibly the biggest advantage is that PoS is 5-20 times more secure than PoW for the same cost. According to Skylar Weaver, the capital needed to carry out an attack in PoS is 5-20 times higher than in PoW.
Low transaction costs: With the merge to PoS Ethereum expects to issue 10 times less Ether than today with the same number of burns. Where the inflation rate would go to -1.8% per year. “I know inflation is at 8.5%, gas prices are going up. But here, gas prices are going down,” said Vitalik. “Low transaction fees are the only thing that can make blockchains affordable to anyone.” “After the merger, Ethereum’s transaction fee could be as low as $0.002,” said Vitalik.
Better recovery from an attack: according to a presentation by Skylar Weaver the budget required for a 51% attack on Bitcoin or Ethereum is USD 10-20 billion while China’s defense budget is USD 146 billion in 2016 and the US for 2021 was USD 745 billion. So he believes we are going to see 51% attacks in our lifetime. Given this scenario, he argues that recovery is possible with PoS but not with PoW. This is because in PoW the attacking capital is visible and can be forced “out of the system” or “eliminated” with the help of the community.
More decentralization: as you need much less investment to be a validator in PoS than to be a miner in PoW.
Environmentally friendly: It is more environmentally friendly as it does not need as much electricity as PoW. After the Ethereum merge, it is expected to emit 99.95% less energy.
Censorship-resistant: It is more difficult to identify a PoS validator than a PoW miner, as with a consumption log they could be located more easily. Another important point is that if you destroy the computer from which you are validating, you do not destroy the Ether.
So, lets re-view some Pros & Cons of PoS (Proof of Stake):
- Staking makes it easier for individuals to participate in securing the network, promoting decentralization. validator node can be run on a normal laptop. Staking pools allow users to stake without having 32 ETH.
- Staking is more decentralized. Economies of scale do not apply in the same way that they do for PoW mining.
- Proof-of-stake offers greater crypto-economic security than proof-of-work
- Less issuance of new ether is required to incentivize network participants
- Proof-of-stake is younger and less battle-tested compared to proof-of-work
- Proof-of-stake is more complex to implement than proof-of-work
- Users need to run three pieces of software to participate in Ethereum’s proof-of-stake.
What tests have been done so far?
In June 2022 we tested the merge on Ropsten and it was successful. Then in July they did the merge on Sepolia, another ethereum testnet, and in the next few weeks they are going to launch PoW on Goerli and this will be the last step before launching the merge on the mainnet. The estimated release date is 15 September.
To know more about The Ethereum Merge read this post of Ethereum Foundation.
September is sure to be an interesting month!