12 minutes to change the face of Ethereum

What exactly is this famous fusion?

Recall that the Ethereum blockchain can be considered structurally as a technical infrastructure that allows many decentralized applications (dapp) exist and function. By analogy, we could imagine Ethereum as the Internet and decentralized applications such as Facebook, Amazon, Netflix etc. Without the Internet they could not work. Well, following this logic, decentralized applications could not work without Ethereum (although there are other blockchains to run Dapps, this analogy serves to illustrate the usefulness of Ethereum).

Proof of work …

Currently, and for a few more days, Ethereum works with the proof-of-work consensus mechanism (Proof of work) in the same way as Bitcoin. One of the most controversial features of this consensus model is undoubtedly its environmental reputation. Typically, Bitcoin currently consumes just over 94.3 TWh per year, which is slightly less than the Netherlands’ annual electricity consumption (105 TWh). It is also less than the energy consumption of American residential refrigerators and freezers alone, which in 2021 amounted to 104 TWh. For its part, Ethereum currently consumes 45 TWh per year.

This electricity consumption derives precisely from this mechanism Proof of work which involves complex, energy-intensive math to validate and secure transactions. A process commonly called “mining”. To carry out this activity, of course, the miners leave aside the picks and wagons of yesteryear to exchange them with giant servers that can span multiple hangars. Sheds consisting of machines connected to a network node that solve complex equations based on cryptographic algorithms. Well with The Merge, and then the switch to Proof-of-Stake (Proof of Stake), these minors are excluded. Even if they can console themselves on Ethereum Classic (a split of Ethereum in two in 2016) or a possible new split of the blockchain in two at the time of the merger. Additionally, some wish to maintain consensus on proof of work by mining after The Merge because they naturally see a financial interest in ether mining ($ 17 billion generated on Ethereum in 2021).

… post-proof.

The merger of Ethereum (hence The Merge) from proof of work to proof of stake will very concretely combine two technological levels that will combine the current level of execution (under proof of work) with a new level of consensus called “Beacon Chain “(under proof of stake).

Fusion diagram

When the merger takes place (Consensus Layer and Execution Layer in the graph above) the Ethereum blockchain should theoretically continue to function normally, except that it will only function under proof of stake. It’s a bit like a car has to switch from a heat engine to an electric motor while continuing to drive. Finally we could say that the 3.0 mechanics have 12 minutes to make the change and fix any bugs. Although, if several technical problems occur, this period is likely to be extended. But this merger raises several problems:

Network security

As discussed above, Ethereum will no longer be protected from miners with ultra-sophisticated computers solving complex calculations because this process is the essence of proof of work. As part of the proof of stake, miners give way to validators, sometimes called “participants”. Therefore, these validators “bet” their ETH resources with other validators to secure the network. It is therefore the economic value of ETH, or access to capital, that takes the place of the energetic debauchery of the miners. In other words, the more capital an entity commits, the more likely it is to validate transactions, the higher the return. For example, you will need to own 32 ETH (currently $ 48,000) to independently participate as a validator. This is a high barrier to entry for most of the community. But this figure is not fixed. It probably won’t be set in stone. ad vitam aeternam. Then the validators will be able to group themselves in a pool to build a capital of 32 ETH and then participate in the system by pooling resources.

But this suggests that the players with the most capital will be the ones who validate the most transactions. In other words, the risk of centralization hovers above this consensus model, especially when we know that 66% of the ETHs that are blocked / blocked in the deposit agreements on the “Beacon Chain” come from centralized entities such as Lido, Coinbase, Kraken, Binance and others.

Composition of the keepers on the Beacon Chain
Analysis of the dunes

On the one hand, some experts believe that by allowing you to become a validator simply by holding the capital, more actors will be able to participate in the decentralization of the network. Indeed, it will not be necessary to operate machines that consume energy 24/7, but simply to block its resources and thus become a validator. On the other hand, some believe that major ETH holders will inevitably get bigger and bigger until, perhaps, network security is compromised.

In an ecosystem that supports and attaches great value to decentralization, the system without trust and confidentiality, this centralization is perplexing even if we will draw conclusions after the merger. A centralization of the ethers we talked about in the article : Ethereum: is pushing at the gate.

Zero energy consumption and that’s it

With this merger of PoW into PoS, Ethereum’s carbon footprint should be significantly reduced. Since validators don’t use super-powered computers that consume an astronomical amount of electricity, power consumption is expected to drop by 99.95%. Not so bad these days. Reducing electricity consumption is a major consequence of the merger, but contrary to popular belief, the merger will not extend the scalability of the Ethereum blockchain in terms of speed and transaction costs. In other words, after the merger, we will see Ethereum still process between 13 and 20 transactions per second with, depending on market conditions, transaction fees that can still panic the branches. Therefore, the terms of use for the simple user will not change after the merger.

When will Ethereum become more scalable?

The holy grail of any Web3 network is reaching the blockchain trilemmaquoted by Vitalik Buterin himself: scalability, decentralization and security. If Bitcoin and Ethereum guarantee, in particular thanks to proof of work, the security and decentralization of their network, there is no scalability. With five transactions per second for Bitcoin and between 13 and 20 for Ethereum, we understand that the mass adoption of these networks is compromised, on the one hand by slow execution, and on the other hand, by the increase in transaction costs when saturated. .

To be more scalable, other blockchains such as Solana, Avalanche, Binance Smart Chain (BSC), among others, have emphasized the scalability of their network despite flawless decentralization and security. These offer, using proof of participation, a transaction speed of over 20,000 per second and sometimes less than a dollar fee to complete a transaction. On the other hand, decentralization pales in comparison to many of these high-performance blockchains. Typically, for the BSC, 21 validators are in charge of managing all transactions on its network. A blockchain that has a limited number of validators exposes itself to the risk of corruption and therefore to a vulnerability of the network in the face of malicious actors. And it is the very essence of decentralization that is so important in the eyes of the crypto community that it is not actually respected.

As previously mentioned, and despite being under proof of participation, Ethereum will not become directly scalable after the merger. On the other hand, it is in the plans of the co-founder, Vitalik Buterin, for 2023.

To do this, Ethereum extends, on the one hand, vertically on different technological layers (such as Arbitrum, Polygon, Optimism, zkSync …) which allow, in simple terms, to group hundreds of transactions in a single operation which is then submitted for the final execution on the Ethereum blockchain. These different layers (often called Layer 2) can process several thousand transactions per second at a very low cost by relying on the security of the Ethereum network.

On the other hand, this time horizontally, the merger will be followed by another update called The Surge. This will introduce “sharding” technology and help increase the scalability of Ethereum natively by dividing the main chain into several smaller chains called “shards”. We have explored this sharding technology extensively in this article: Can Near obscure Ethereum?

Infographic: the sharding of the main blockchain in four
Source: medium

This sharding which, according to Vitalik Buterin, should take place in 2023 will improve Ethereum’s scalability by a factor of 100,000. This time around, the user should be able to feel a marked improvement in their usage experience. But it’s not finished. After The Surge, Ethereum will see several updates: The Verge, The Purge and The Splurge which should improve data storage by reducing the memory space requirements of validators. This will ultimately allow to limit the episodes of network congestion on Ethereum and thus to mitigate the risk of explosion of transaction fees.

Definitely, the merger is expected to take place officially between 13 and 15 September and will not require any user action to switch from one consensus model to the other for both self-hosted wallets and wallets on cryptocurrency exchanges. So if you get an email saying that you have to send your ETH to another address to get the “new ETH”, obviously ignore it. Otherwise you will never see the color of your true ethers again. Finally, there will be nothing left to do but observe the execution of this merger in a context of financial and ideological speculation.

12 minutes that could still mark the beginning of a new era in Web3. Maximalist bitcoiners will say otherwise. In any case, we can already say that there will be a lot of excitement around this date on Ethereum, whether the merger is a clear success or a bitter failure. Count on me to take stock of The Merge after this exciting merger.

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