Ethereum switches to Proof-of-Stake after 7 years of work

Ethereum switches to Proof-of-Stake after 7 years of work

Ethereum has finally switched its underlying consensus model to Proof-of-Stake (PoS) following the peak of seven years the planning by the core developers of the blockchain.

The log merge was triggered at 6:43 a.m. UTC (2:43 a.m. ET) on Thursday, September 15, when the blockchain reached a Total terminal difficulty of 58,750,000,000 tons. Ether was trading around $1,588.12 after the energy-saving software upgrade, Blockworks Research Data shown.

After 13 tense minutes, Ethereum developers and researchers confirmed that new blocks, or slots as they are called in Proof-of-Stake Ethereum, had been produced and completed.

Over 40,000 live viewers tuned in to the Ethereum Foundation livestream at the time of the event.

Perhaps the most anticipated event in the crypto world, the merger was one of the industry's most difficult technical feats, according to analytics firm BitOoda.

“It represents a shift in the blockchain’s underlying consensus engine while Ethereum continues to run and support the $100 billion-plus DeFi, NFT and app economy without a hiccup,” said Vivek Raman, head of PoS at BitOoda.

His upgrade also aims to inadvertently silence critics of the industry's energy use, which has been blamed in part for contributing to climate change.

The Ethereum Foundation Estimates that merging with PoS drastically reduces the power consumption of the blockchain by 99.95%.

“So many people think that all blockchain projects are inherently terrible for our climate,” said Lia Holland, campaigns and communications director at nonprofit advocacy group Fight for the Future, in a Statement.

“The Ethereum merge shows real action by one of the largest chains to reduce their energy consumption to 1/1000 of their previous consumption.”

Enabling PoS also drops the issuance of new supplies of ETH by 90%, and some proponents claim the impact is equal to three Bitcoin halving events. This means that the number of Ether mined per day will be reduced from 13,000 to around 1,600 per day.

Previously, a single transaction on Ethereum required enough energy to power an average US household whole week. Post-merge, that's closer to boiling, according to Juunu Salovaara, head of platform development at carbon credit crypto firm Likvidi.

“In terms of energy consumption, it will now sit alongside other protocols that are considered sustainable, such as Tezos, Solana and Algorand,” he said. “As it is still by far the second largest blockchain in the world, it presents an opportunity for sustainable blockchain projects looking for a home.”

Scalability to whom?

And the biggest misconception about the merger is that it will lower gas fees. “That’s not true,” said Steven Walbroehl, co-founder and CTO of Halborn. “It is a change in the consensus mechanism, not an expansion of network capacity, that would result in lower gas fees.”

Alex Connoly, chief technology officer of NFT marketplace and Ethereum Layer 2 scaling solution Immutable X, agrees.

“Currently, the cost of data availability for rollups is the primary scalability bottleneck in all Ethereum transaction processing,” Connoly said in a Blog entry Monday. “The near-term (2023) scalability updates are primarily mechanisms to reduce these costs.”

This includes a proposal to reduce data costs by storing data blobs - a data type that contains binary data - for short periods of time on beacon nodes.

The other would be to reduce data costs by allowing nodes to store only a subset of data via sharding, Connoly said. Sharding for Ethereum refers to the process of balancing network load and dividing data across 64 separate shards.

But a definitive date for when that might actually occur is unclear given Ethereum's slow and steady development approach.

It will take a long time

Ethereum first expressed its intention to move to PoS shortly after its launch in 2015.

The transition was marked by constant delays, touted at the time to give the team more time to prepare, much to the chagrin of the network's impatient user base.

It also gave Ethereum founder Vitalik Buterin enough time to compile various writings based on his findings during these years. These will be published in a Book Later this month.

The Beacon Chain, the core mechanism of the new network, was finally launched in December 2020. That was one of the first milestones leading up to the event. Since then, Ethereum has operated both a PoS chain (Beacon Chain) and a Proof-of-Work (PoW) change.

Goerli – Ethereum’s third and final testnet – was one of the final hurdles the chain had to overcome before its final transition to PoS, early last month.

Completing the merge not only marks the integration of both chains, but is a huge symbolic win for those who have contributed to their codebase over the years.

Because the Beacon Chain has been running for almost two years - there have been mainnet shadow forks and 3 live testnet merges - the duration and frequency of testing has significantly increased the likelihood of success, Mark Connors, head of research at 3iQ Digital Assets, told Blockworks.

What are the risks?

The main risks of the merger included unforeseen technical problems or a material change in gas fees. And while those who have played an important role in the stability of the network as a PoW concept, some are less accepting of the change.

The controversial Ethereum PoW (ETHW) fork, expected to officially launch within 24 hours of the merger, is one such concept that calls into question the transition to PoS that threatens to put miners out of business.

Still, most of the industry intends to move forward with minor issues that can be easily fixed by developers after the merger, analysts say.

“That of the Ethereum Foundation $1 million reward for programmers who have found bugs is an example of how much focus and energy goes into overcoming these efforts,” said Connors.

A lot has now fundamentally changed for ETH token holders and the Ethereum network. The debate over whether Ethereum could flip Bitcoin will continue in the months following the merger. That remains to be seen for now. You can find more Blockworks articles about the Ethereum merge here.

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The post Ethereum switches to Proof-of-Stake after 7 years of work and is not financial advice.