Announced for some time, postponed several times, it should finally happen this Thursday. The transition from the Ethereum blockchain to the proof-of-stake, nicknamed ” Merger “ (Where is it ” The merger in English) is a real earthquake in the world of cryptocurrency enthusiasts. It could definitively revolutionize the sector by reducing its considerable energy footprint, a criticism very often leveled at cryptocurrencies, at the forefront is Bitcoin, increasingly questioned in terms of evaluation by Ethereum.
Proof of Work or Proof of Stake?
This small revolution is about how transactions are verified on the Ethereum blockchain. Blockchain technology allows you to send money without going through a trusted third party. When making a classic transfer, it is the bank that assumes this role of intermediary, verifying, for example, that the person making the transfer has sufficient funds to pay the recipient, and that the sum withdrawn actually arrives in his bank account.
With the blockchain, the security of the transaction is ensured by the users organized on the network. Traditionally, this goes through the mechanism of proof of work (Proof of work). Computers updating the blockchain, nicknamed ” minors they are constantly competing with each other to validate the current block of transactions, in what appears to be a gigantic computation contest. To win, you must be the first to solve a complex mathematical problem (called ” hash function “). The miner who accomplishes this before the others is awarded the right to validate the new block of transactions, which is then immutably added to the chain of previous blocks (hence the term” blockchain “), while the miner receives a digital currency payment for his participation.
Used by the Bitcoin blockchain, but also by Ethereum, this device requires considerable computing power, and the miners are therefore real digital farms with many computer servers, rarely people who work alone at home behind their computer. Although reliable, it has the disadvantage of being very energy-intensive: according to some estimates, the energy consumed each year by the Bitcoin blockchain is equivalent to that of a country like Belgium.
The mechanism of proof of participation (Proof of stake) it’s completely different: computers don’t burn energy by trying to solve one problem before others. Instead, blockchain participants are asked to pledge their digital tokens (in this case, ether). They thus earn the right to participate in a lottery: each time a transaction needs to be validated, one of the participants is selected to validate the transaction. The more tokens he has put in escrow, the better his chances of being selected. In the case of Ethereum, validators must aim for at least 32 ether to help validate blocks. Once the transaction is validated, he receives multiple digital tokens in exchange. Conversely, if the participant misbehaves, for example by validating a fraudulent transaction, he loses the ethers he has put on escrow.
As for the term ” Merger ”, Derives from the fact that the Ethereum blockchain has already been testing the proof-of-stake mechanism on a small scale for some years. ” This is a merger here, because a parallel Ethereum network is already running in proof of stake since December 2020 to test the reliability of the device, so today it is a matter of joining the two networks “, Explains Émilien Bernard-Alzias, associate attorney at Simmons & Simmons, specialist in new technologies, information technology and communications law.
The expected benefits from the Merger
If the Merger is so expected it is therefore because it promises to make the Ethereum blockchain less energy-intensive, which today constitutes one of the main obstacles to its deployment on a larger scale. ” The impacts are above all environmental, since the validation of a transaction will no longer be based on the energy consumed to solve a complex mathematical problem (the ” extraction “) but based on the number of ethers possessed by the validator (s) (the” staking “) », The lawyer develops. Proof of participation requires 99.9% less energy than proof of work. Organizations committed to environmental protection, such as Greenpeace, have therefore criticized proof-of-work and instead promoted proof-of-stake.
But the benefits don’t stop there. The abandonment of proof-of-work would also reduce the need for advanced semiconductors, used by miners, and therefore the price of these chips. Good news as the global economy has suffered a shortage in this area since Covid.
The Merger could also, in the long term, allow to lower the transaction costs that are current on the Ethereum blockchain: this can only certify a limited number of operations at a time, when a large number of people try to use it, the transaction fees they can skyrocket, sometimes approaching $ 200 for a single transaction. While Fusion won’t fix this immediately, the developer community sees it as a first step towards future updates aimed at reducing fees.
Finally, the proof of stake would also improve the security of the blockchain: ” if some consider the proof-of-work method to be safer (since it is very energy-intensive and over 50% of the computing power would have to be controlled to perform an attack, known as “ 51% “), with the proof of participation, it is necessary to check 66% of the ethers immobilized in the protocol and it shows “, Notes Emilien Bernard-Alzias.
Ethereum or the promise to decentralize everything
The Ethereum blockchain was created by Vitalik Buterin, a programmer who began working on the concept in 2013 before officially launching the platform in 2015. Buterin’s goal was to create a device that was more open than Bitcoin and not. no longer only allowed the digital exchange of tokens, but also to carry out other types of transactions.
In particular, Ethereum allows you to create smart contracts, computer programs included in the blockchain, which run once precise and predefined conditions are met. Once the parties involved in the creation of the contract have agreed on these conditions, none of them has the possibility to stop their execution. An innovation that opens dizzying prospects, since it allows you to set up complex and secure virtual transactions without the intervention of a trusted third party, at the service of decentralized applications (or Dapps). With important consequences in insurance, real estate contracts, artistic property, or even in the transparency of value chains and product traceability.
Long planned, the conversion of Ethereum into proof of stake has been postponed several times, to the point of becoming the source of many jokes among cryptocurrency enthusiasts. But the game was worth the candle, according to Émilien Bernard-Alzias.
” The Ethereum blockchain, created in 2015, was envisioned as a proof of work, but the move to proof of stake has been in the works for a long time, starting in 2017. However, given the very vast scope of the ecosystem it relies on the blockchain of Ethereum (from various tokens to decentralized applications, decentralized finance or DeFi), the impact of this migration will be unprecedented for the blockchain industry. It was therefore fitting for stakeholders to take the time to work through this process to hopefully achieve efficient proof-of-stake technology and achieve smooth migration. “
A new hope
If successful, the merger would finally prove that Ethereum can improve to deliver on all the promises of the blockchain. A glimmer of hope in a market that has been going through difficult times since the beginning of the year, with cascading failures and digital currencies that have seen their price plummet one after another.
Total cryptocurrency market capitalization is currently around $ 1 trillion, which is $ 2 trillion less than in the same period last year. As a sign of enthusiasm for the announcement, Ether has enjoyed strong appreciation in recent weeks.