Ethereum is switching to PoS
On September 6, Ethereum will begin transitioning from Proof-of-Work (PoW) to Proof-of-Stake (PoS). This new technology will significantly reduce network energy consumption and speed up transactions.
The Ethereum Foundation promises that the final steps to transition the second-largest cryptocurrency from PoW to PoS are scheduled for the third week of September.
Let's talk in more detail about the features and advantages of this process.
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The main difference between Proof-of-Stake and Proof-of-Work
Proof-of-Work and Proof-of-Stake are two different models for verifying transactions inblockchainThey differ technically.
- PoW is used when a miner's hardware solves complex mathematical problems using a large number of machines and requires a huge amount of energy. For adding a verified block to the blockchain, the miner receives a reward.in the form of cryptocurrency(mining).
- In PoS, the creator of a new block is chosen by the systemin advance based on his condition, that is, the share in the total supply of cryptocurrency. That is, instead of the computing power of the participants, what matters isamount of cryptocurrency, which is in their account (staking).
The main problem of mining
Cryptocurrencies, despite their popularity, created using PoW, are actively criticized for the negative impact that their mining has on the environment.
Cryptocurrency mining is a process in which specialized computing equipment or a computer attempts to solve a complex mathematical problem.
Once a miner finds the correct answer to the problem, they are granted the right to close a block of transactions in the blockchain and receive a reward—coins. This is how cryptocurrency is mined using the Proof-of-Work method. Bitcoin, Ethereum, Tether, Litecoin, and many others are mined this way.
There are thousands of large and hundreds of thousands of small mining farms around the world that mine crypto using the PoW method. This requires expending enormous amounts of electricity, often generated in a highly unsustainable manner, polluting the atmosphere and harming the environment.
Proponents of sustainable and environmentally friendly technological development believe that the process of cryptocurrency mining provides no additional benefit to the world or society. The electricity used for mining essentially goes to waste.
Key players in the crypto industry are working to change this situation and minimize the negative impact of mining on the environment.
The idea behind Proof-of-Stake is to solve the problem of Proof-of-Work, which is associated with high energy costs.
Energy-efficient
Bitcoin mining is known to require approximately 100 TWh per year, which is comparable to the electricity consumption of the Philippines. Since its inception (July 30, 2015), Ethereum has also been mined using PoW technology. As of June 2022, the Ethereum blockchain's energy consumption is 112 TWh per year.
The main advantage of Proof-of-Stake over Proof-of-Work is the enormous energy savings. According to calculations by the Ethereum Foundation, the new method, which involves replacingminingonstakingwill consume 99.95% less energy.
The Ethereum Foundation has developed a scenario for more efficient energy consumption. The developers claim that after switching to PoS, running a single node will require no more electricity than running a typical PC.
What are the benefits of the announced update?
- PoW method is associated with significant energy costs, which reduces the scalability of the network.
- PoW mining requires specialized hardware, making it less accessible.
The upcoming update should address these issues and bring Ethereum closer to solving the blockchain trilemma (or scalability trilemma)—a theorem that formulates the fundamental problem of scaling any distributed network. We'll discuss this in more detail in our next article.
The transition to Proof-of-Stake has been repeatedly delayed over the past few years. According to developers, the process is slow because in-depth research and high-quality implementation of updates requires significant time. To achieve this, the Ethereum Foundation even implemented the Arrow Glacier (2021) and Gray Glacier (2022) updates. These were designed to create the conditions for Ethereum's optimal transition to a PoS algorithm.
The Merge's Major Update
In early August 2022, the developers of the second-largest cryptocurrency by market value conducted the final "Merge" test ahead of the long-awaited major update called The Merge.
This event is expected to be one of the most important in Ethereum's history. As previously mentioned, the transition to a more energy-efficient mechanism is scheduled to begin on September 6th.
Two-step process
According to the Ethereum Foundation, the transition from the PoW system to PoS will be carried out in two stages.
- The first step is the Bellatrix update. It's scheduled for release on September 6 at 11:34:47 GMT.
Once it is activated, another counter will start to reach the TTD (Total Terminal Difficulty) threshold of 5875000000000000000000000. TTD is difficult to define briefly, but essentially it is a measure of activity on the Ethereum network.
- The second step is the Paris update. It's scheduled for the second half of September.
Once the TTD threshold is reached, the second update, Paris, will be launched. Once activated, the migration will be complete. According to experts, this will only be noticeable at a technical level for now; the tangible effects of the switch will take some time to become apparent.
The TTD threshold is a difficult figure to determine: reaching it depends on the ebb and flow of Ethereum usage after September 6th. This is why the developers cannot pinpoint a precise date for the switch. However, the final phase of The Merge activation is theoretically scheduled for September 15-20th.
Expectations of Ethereum owners and miners
After Ethereum transitions to PoS, miners will be replaced by validators. They will perform the work of confirming new transactions using stakes and receive a reward in Ether. The current yield of ETH staking is 4-4.5%.
Ethereum holders expect The Merge to lead to a rise in the cryptocurrency's price. However, experts say that starting September 10th, mining Ethereum using GPUs will become impossible.
How ETH miners will react is unknown. Some experts predict the emergence of a fork called Ethereum PoW (ETHW), which will allow miners to continue earning.
There's also speculation that some ETH miners may migrate to another project: Ethereum Classic (ETC). This is a long-standing Ethereum fork. It's very close to its parent project in terms of architecture, but has a much lower hashrate and overall activity.
One of the biggest events in the crypto world
The Merge is currently one of the largest events in the crypto world. Most experts agree that The Merge will have a significant impact on the cryptocurrency market.
On the one hand, this is a technological update that will allow the implementation of new functions in the Ethereum blockchain.
However, it's also something more fundamental: a test of community alignment and commitment. If Ethereum survives and thrives after the merger, it will be a sign of significant trust in the platform.
The essence of The Merge upgrade
The Merge project began with the launch of a network separate from the Mainnet called the Beacon Chain. It was on this network, at the end of 2020, that a special smart contract for ether staking was deployed, allowing funds to be sent.
The announced update will effectively be a merger of the Beacon Chain and the Ethereum mainnet.
Another important consequence of the upgrade will be increased security, so Ethereum will be able to more effectively repel attacks from hackers.
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