A big change proposed by Ethereum network: Are there any added benefits?
Since the Ethereum network went live on 30 July 2015, Ether is second only to bitcoin in terms of market capitalisation.
Ethereum is a decentralised, open sourced blockchain that has smart contract functionality. It allows anyone to deploy permanent and immutable decentralised applications onto it, with which users can interact.
Thousands of Defi applications have been built on the ethereum blockchain that bring benefits to millions of users, including businesses.
Recently, the ethereum founder announced that there will be a launch of the “merge”(Ethereum 2.0), which is essentially an upgraded version of the current Ethereum block chain.
The merge will, well, merge the current Ethereum mainnet — or the main public Ethereum blockchain used by everyone — with something called the Beacon Chain. Currently, both chains exist in parallel. But only the Ethereum mainnet, which currently uses a mechanism called proof of work, is processing transactions.
What is the difference between the two and will there be any added benefit with this ‘merge’?
The Ethereum merge will shift the Ethereum security mechanism from proof-of-work (PoW) to proof-of-stake (PoS) and greatly impact the tokenomics of the blockchain. The move from PoW to PoS will solve many of the complex issues that miners have had with solving complex computational puzzles to add blocks on the blockchain that essentially utilised a lot of energy and had high costs of operation.
The Ethereum blockchain hosts numerous decentralised applications (dApps) and decentralised finance (DeFi) protocols and establishes the authenticity of millions of non-fungible tokens (NFTs). This upgrade will affect not just the Ethereum blockchain, but a wide constellation of products and services that rely upon it. And given Ethereum’s size and influence, the fate of the merge is likely to have a ripple effect on the broader crypto industry.
The main aim for the move to the Proof-of-stake is to make the network more scalable and accessible.
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The biggest change will be affecting the current miners as the Ethereum will be secured by validators instead of miners.The network will require a validator to stake 32 ETH in order to participate in the validation mechanism and when a validator is selected by the network, that staker will earn a reward generated through transaction fees known as ‘Gas fees’.
For ordinary users a major future benefit will be the possibility to lower these gas fess as gas fees are considered a big pain point for Ethereum users. This is unsurprising since during the busiest periods on Ethereum, gas fees can reach hundreds of dollars, making the network unviable for many. The merge will shift Ethereum to proof of stake, but it will not expand network capacity. Therefore, it will not directly impact the price of gas fees, but this can be achieved with the introduction of sharding.
The introduction of sharding and roll ups — a so-called Layer 2 technology that “rolls-up” a multitude of transactions off-chain, processes it, and then records a compressed version on the main Ethereum blockchain, lower gas fees have been predicted, and it is estimated that in time, after the merge, gas fees could be as low as $0.002 to $0.05.
Sharding will also essentially make Ethereum faster and it is reported that it will be able to process 100,000 transactions per second.
Having a proof of stake will also reduce the production of ether and could raise its market cap eventually eclipsing Bitcoin in market cap over the next 12 months, according to an Aug. 12 report by research firm FSInsight. If this was to occur this would be an added benefit for firms holding Ether as an investment asset.
In Summary the merge will make ethereum become much faster, safer, and more decentralised. Eventually it will also become cheaper to transact on the network and this is a step closer to having a zero fee payments system.
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This Articles was first published in the?Skrypt Magazine?. Skrypt Magzine is a Financial magazine that will follow and explore the blockchain, fintech and payments, and Financial management trends across the globe.
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2 年The Concept of "Proof of Stake" It's a bit like gambling. ?? I guess the increase in risk on MINER'S side and not on the BLOCKCHAIN does translate into a security feature. Basically, a Miner risks losing their coin if they "misbehave" on the network. Also, I like that for the Proof of Stake algorithm, you don't need an extremely high powered machine. Well, you still need a powerful machine but your the PoS algorithm doesn't use as much power as PoW, which is a plus for Miners in areas where electricity is priced at a premium, unstable and alternatives are hard to come by. However, PoW is kind of Capitalist. ?? The more crypto you bid,, the better chance of winning. Anyway, generally, the world is fueled by competition. Great article as usual. ????