Ethereum developers have finally announced the date of transition to PoS - September 15, 2022.
All the tests have been passed successfully, and if no unexpected situations occur, then the event will happen exactly by this time, the chance of schedule change is close to none. Let’s remind ourselves of the reason and explore the procedure of the Merge. 👍
Why does Ethereum transition to PoS?
Transition from Proof-of-Work to Proof-of-Stake is caused by several reasons: Lower power consumption; Higher PoS scalability; Lower transaction fees.
Power consumption
Fun fact: Proof-of-Work based Ethereum consumes as much electricity in a year as Finland. The fact that the net is so non-efficient is certainly not in line with the green trend of modern technology companies. PoS will reduce electricity consumption by 99.98%. 🔋
Scalability and fees
Proof-of-Work consensus mechanism is not too long-lasting and will not be able to scale forever. Proof-of-Stake, on the other hand, will make participation in the network accessible not only for large miners,but also for a large number of users, who don’t have access to advanced tech. The entry threshold is essentially a minimum stake size of 32 ETH (~$55K) - everyone can stake and not worry about equipment, its placement and electricity bills. Consequently, higher throughput will decrease the transaction costs. 💸
That will make the entire ecosystem more attractive for users and developers.
However, Merge is just the first phase, that won’t utilise all the innovations. Vitalik Buterin himself stated that after the Merge Ethereum will only be ready by 55%.
There are 4 more stages to follow:
The Surge
Dividing the blockchain into smaller parts is called sharding, which increases scalability dramatically. As from what we know, the transition to sharding should take place in 2023, however schedule changes are likely to happen. 🫤
To understand the meaning of sharding, imagine that you have 10,000 records in a database. Instead of checking all the data yourself, it is much smarter to ask five people for help: each one will check 2,000 records, and the task will be completed significantly faster. 🏎
The Verge
Reducing the size of proofs. Data storage and node size optimization. Consequently, increasing scalability. 📈
The Purge
Optimising the older data and the data storage itself - will reduce the network congestion. 🙌
The Splurge
Minor updates that finalize and unite all 4 previous stages so that the network efficiency can reach its peak. 🚀
All the updates will take place in the next couple years. We can expect a spectacular blockchain battle during that time. ⚔️
Predictions
Coinbase analysts have already calculated that the profit on ETH staking after the Merge in September will be 6.9%. Even though 6.9% is an excellent yield for the US market, ETH is a highly volatile asset, and perhaps such a premium will not be enough to make the institutional investors outside crypto interested. 🙁
However, stakers, unlike miners, do not have any overhead costs like paying for electricity, renting premises, etc. As well as they do not need to be constantly selling Ethereum to continue their work. This should also relieve pressure on the glass. 🥛
ETH inflation will decrease from 4.3% to 0.22% after the Merge. This would basically mean that 95% less Ethereum is being leaked into the market. 😁
Another claim, Buterin made is PoS being more secure than PoW - more security for the same price, the consequences of attacks are much easier to recover and the centralisation is significantly higher than with PoW. 👮♂️
However
Miners aren’t really fond of the transition, because it will basically kill their main income. They are planning on doing an ETHPoW hardfork. The fork would require coming around the so-called Complicity Bomb - a protocol, that makes mining harder and dramatically decrease its rentability. Ethereum Classic team is desperate about the hardforks fail and is saying that the only right decision would be switching to Ethereum (More about the Ethereum Classic situation in this article).
We shall wait until September and see whether the fork that is planned right after the merge will work. The Merge situation is becoming more and more interesting every day and we are really looking forward to seeing how it ends. 👀
Stay tuned 📻
