Is called “The merger“(the merger). On September 15, the Ethereum blockchain will switch from a protocol operating on the basis of consensus through” proof of work “(proof of work) to a protocol based on “proof of participation” (proof of participation). This update is expected by the cryptocurrency community as an important event. Ethereum is the second blockchain in the world (around 200 billion dollars of capitalization), after Bitcoin.
What is “The Union”?
Ethereum is also the main blockchain used by NFT, decentralized applications and decentralized finance. Furthermore, it is a protocol that several other cryptocurrencies are based on, as it runs smart contracts.
Its very gradual move to proof-of-work consensus has been in preparation for several years. But the moment of truth is Thursday. It is at this moment (fixed just when the level of mining difficulty of the last block on the proof of work blockchain will have reached a certain threshold) that the parallel blockchain of Ethereum in proof of stake, created at the end of 2020 by the developers to test the system, they will merge with the main Ethereum blockchain. Hence the name given to the event.
We will have to make the transition without disruption of service, which some compare to replacing the engine of an aircraft in flight. Suffice it to say that in the ecosystem we prepare ourselves as the Bug of the Year 2000.
How will Ethereum work after The Merge?
On blockchains that adopt consensus-based proofs of work, such as Bitcoin, block validation is performed by solving complex calculations, with the “participation” of the validator taking the form of computing power and energy expended to perform these calculations. . The new consensus mechanism – the way in which blocks of information are validated for entry into the shared ledger – via proof of stake adopted by Ethereum is based on “validators” that stake (block or pole) 32 ether minimum on the blockchain.
Blocking this sum shows that they have an interest in the proper functioning of the network. In exchange for helping to validate blocks, they earn ethers every time they contribute (proportional to the number of ethers wagered). Validators are randomly extracted at each validation. The blocked sum can be entered if the behavior of the validators is contrary to the smooth running of the chain. In this system, a validator who reports another dishonest validator also gains ether. The goal is to avoid the formation of cartels.
Users can meet in “staking pool“merge their ethers to reach the 32 ethers needed to validate blocks, or surpass them to increase their chances of being selected to validate them. In this case, they split the rewards. $ 30 billion in ether would already be staking on the new blockchain. , these ethers will remain illiquid until the next protocol update, which is 6 to 12 months, according to the Ethereum Foundation.
What impacts on the blockchain?
After The Merge, a block commit will occur every 12 seconds, compared to the current average of 13-15 seconds. In other words, when it comes to scaling, The Merge won’t speed up Ethereum transactions much. The main expected benefit is the environmental gain. In fact, its developers claim that the energy savings compared to the proof of work will be 99.95%.
Other impacts are expected. First of all on the financial aspect. The number of ethers mined after The Merge will increase from 13,000 per day to 1600 according to the Ethereum Foundation, which should logically lead to an appreciation of the cryptocurrency. Furthermore, according to Chainalysis, the staking mechanism could create Ethereum “an interesting alternative to bonds for institutional investors”thanks to potential annual returns of 10 to 15%.
Hence, miners who had invested in hardware to mine the proof-of-work version on Ethereum will have to convert, unless a bifurcation – a community-modified version of the protocol, in this case the one that wants to continue using proof of work – is attractive enough to preserve one’s source of income.
This restructuring of the mining industry will change the ecosystem and should, incidentally, accentuate the drop in the price of graphics cards used for mining (a phenomenon already underway). Major mining companies have said they will recycle their capabilities for cloud and artificial intelligence needs.
What are the risks of updating?
This is the first time an update of this magnitude has occurred, so we can only speculate. The main risks, however, are the bugs, with the economic consequences that are imagined, the cyber attacks during the format change phase, and the attempted scams exploiting the event.
Normally, blockchain users and ether owners don’t have to do anything, the process should be transparent for them. But smart guys will inevitably try to take advantage of the opportunity for phishing attacks. As a precaution, the cryptocurrency exchange platform Coinbase has planned to briefly suspend deposits and withdrawals on the day of the switch. Binance too.
Why does not everyone like this revolution?
Proof-of-work advocates fear The Merge will make Ethereum a more centralized protocol susceptible to state interference, as it will be in the hands of those with the Aether most at stake. They are thinking in particular of platforms that act as depositories on behalf of investors, such as Coinbase, Kraken or Binance, or even the Lido staking protocol. More and more regulated companies.
The other criticism concerns the securing of the new protocol, which would be easier to attack by reaching 51% of the cryptocurrency mass in ether than by accumulating 51% of the mining capacity. This argument is opposed by Ethereum France, which believes that bribing the blockchain is much more expensive with proof of stake than with proof of work.
In the magazine Time, one of the developers of Ethereum explains that it currently takes $ 5 billion to take control of Ethereum with the proof-of-work mechanism (to buy the necessary hardware and electricity), while it would take $ 20 billion with the proof-of-stake mechanism. Furthermore, the attack would cause the committed amounts to go up in smoke, while the hardware used for mining cannot be physically and immediately neutralized.
Will Ethereum Solve Its Scaling Problems?
The merger will not mark the end of developments on the Ethereum blockchain. Four other phases are foreseen in the program, designed, among other things, to accelerate the network capacity and the speed of transactions up to 100,000 per second (compared to less than 30 at present) and to reduce “gas costs”. These management costs on Ethereum are high compared to other blockchains. They can reach several hundred dollars for a single transaction due to limited network capacities, making certain uses obsolete. In order for them to really decrease, it will be necessary to wait for a “level 2” (layer 2), like that of the Bitcoin Lightning Network.