The merge signals a new opportunity for entrepreneurs, creators, builders and contributors, says Megan Au, Senior Corporate Consultant at ConsenSys.
The merger will resolve key policy issues and garner support across the political spectrum. Ethereum is a transformative technology. However, criticism of the Ethereum network identified several shortcomings of the network. The most commonly cited series are safety, energy consumption and an elite barrier of entry. The merge will transform the network by not only rectifying these issues, but also fueling the policy debate around crypto.
merge inflection point
While the countdown to the merge has felt as usual; Merge is an inflection point and a seamless technological transition that has been planned, developed and tested over the years by Ethereum’s international network of developers. When the merge is successfully executed it will be a tremendous achievement.
In this upgrade, Proof-of-Stake (PoS) will replace the existing Proof-of-Work (PoW) consensus mechanism. PoS eliminates Ethereum’s reliance on energy-intensive mining. There is a considerable amount of noise circulating about the steep drop in transaction times and costs immediately after the merge. But this is more likely to happen over time and is only an effect of the success of the merge.
Sustainability through cryptoeconomic incentives resulting in energy efficiency is a priority of the merge. In future updates, such as sharding and rollups, Ethereum will see increased scalability.
PoS will remove the race by miners to complete complex algorithmic puzzles in the PoW method. Instead, a system in which validators are encouraged to play by the system’s rules by betting ETH is randomly selected to try and determine the validity of such blocks.
This transition to the consensus mechanism yields a number of beneficial outcomes:
– Required stakes as a validator ETH in the form of risk capital replacing hardware and energy-dependent PoW mining.
-The tempo of the confirmed blocks is decided on the basis of slot and era system rather than dependent on mining difficulty.
Penalties for malpractices in consent are more significant than those through rapid reductions in economic terms.
POS Energy Efficiency
Perhaps the biggest criticism of Ethereum in public policy circles has been its high energy consumption. Currently, PoW consensus on Ethereum requires miners to continuously “work” at a high rate and outsmart each other for rewards. This creates an environment of very high energy use. As Ethereum expanded, the widespread mining equipment of supercomputers created a huge amount of energy demand. The energy inefficiency of PoW has been cited as the primary driver for mass adoption and lack of participation by corporate and institutional players.
Crucially, Ethereum’s transition to PoS as a result of the merge will significantly reduce the network’s energy consumption (lower than Netflix or the gaming industry). a report
The Ethereum Foundation, a non-profit research and development organization, estimates that Ethereum’s energy use will be reduced by 99.95% following the merger.
PoS ends the arms race of big warehouses for power-hungry mining equipment by using economic incentives and penalties for validator behavior based on their collateral stakes ETH.
This algorithm transfers the miners’ energy capital to transfer the validators’ staked ETH as collateral to verify the puzzle is properly solved.
Importantly under PoS, when the price of ETH increases the security of the network also increases, but the energy consumption remains the same. Ethereum will continue to experience additional energy efficiency through sharding and rollups in future updates.
PoS enhances network and asset security
Security is a fundamental concern for any system or technology supporting assets, projects and ecosystem infrastructure. Through brute force and sufficient resources, a PoW network can suffer a serious security incident by an attacker taking control of at least 51% of the network.
PoS will enhance the security and stability of the network, and by extension, the assets and projects developed on it, through token economics. Changes to PoS will dramatically increase the cost of attacking the network. Similar to PoW, an attack to replace the blockchain would require at least 51% control over the network’s hashrate.
In PoS, however, the cost of a 51% attack is almost entirely prohibitive to execute due to the circular flow of staked ETH and ETH prices rising – the more validators stake the ETH, the more rewards the wager earns in ETH. and the price of ETH increases. As a result, it would be incredibly difficult to get 51% of the cost of ETH staking (for example, today an attacker would need at least $15,000,000,000).
There are additional attack vectors but other measures such as the last gadget, correlation penalties, mover boosters and verification deadlines reduce these malicious activities. Economic finality and cryptoeconomic security improve transaction settlement guarantees. DeFi projects as well as traditional institutional participants will be attracted to networks capable of storing value and proving more secure.
Support for democratic access and egalitarian approach under POS
Running a PoW system requires a large amount of expensive hardware and industrial grade computing power to support it. This is to complete as many PoW puzzles as possible. This has given rise to mining warehouses in the race for computing power and limited the opportunity to participate only to those with significant resources.
Participation under POS is open for any individual or group pooled with 32 ETH to set up a validator. Pooling allows participants with less than 32 ETH to still participate. Pooling mechanics are currently offered by centralized exchanges as well as more decentralized projects such as Lido and Rocketpool.
The validators are chosen at random as a block proposer and/or a member of the block’s validator committee. Once a block is properly proposed or validated, validators receive ETH rewards in exchange for their service in establishing and maintaining consensus.
The random nature of validator selection, multiple avenues for wagering and minimizing penalties, undermine the high bar of entry required under PoW. It also opens up access to far more participants in PoS. The egalitarian method of PoS reduces resource requirements and computation-intensive requirements for validator nodes and means that each node will have an equal chance of successfully validating a block and thus earning a reward.
Merge and a new policy scenario
The merge signals a new opportunity for entrepreneurs, creators, builders and contributors to create value in a sustainable manner without sacrificing security, energy efficiency and democratic access. It reflects the innovation and entrepreneurial values of openness, sustainability and economic rewards for productive contributions.
Merge is an exciting moment for Ethereum’s technical potential and future. It is also important to advance the policy debate. After the success of the merge and the resolution of major disagreements, policy focus can shift to unresolved important issues. There will still be ground to cover but progress crystallized in September is beneficial across the political spectrum.
About the Author
Megan Au, Senior Corporate Consultant – Product and Strategic Partnerships ConsenSys, He has been recruited to practice law in New York and Washington, DC and is passionate about blockchain technology and its intersection with legacy legal frameworks. Megan, a member of the Enterprise Ethereum Alliance since October 2020, currently works closely with the teams at ConsenSys to launch and develop products built with nascent technology in a tailored manner and adapt to the rapidly evolving regulatory environment. navigate.
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