Ethereum’s latest and greatest upgrade to date saw the blockchain shift from a proof-of-work (PoW) mechanism to a more sustainable proof-of-stake (PoS) model, replacing miners with stakers in a very complex and extensive process.
A few months ago, after years of planning and preparations, Ethereum finally completed its highly anticipated and much-debated Merge – the massive overhaul that ended the network’s reliance on the original proof-of-work consensus by switching to a proof-of-stake model in order to address the pressing issue of energy consumption and improve system performance. It was a move that targeted the very core of the network, so the stakes were high, and the entire world watched how things unfolded with great interest.
Although it may be too soon to assess all the implications and the extent of the impact that the Merge had on Ethereum and the cryptocurrency industry at large, by all appearances, the years-in-the-making update was a complete success and managed to reach its objectives.
However, even though the event enjoyed massive media coverage, both before and after it came into effect, a lot of people, from crypto enthusiasts to mere spectators, don’t fully comprehend what the Merge was all about and how the network changed as a result. While it only takes a quick online search to learn about Ethereum price, use cases and advantages, or find out where to buy Ethereum, it’s a lot harder to understand the inner workings of the technology and what they imply.
So, if you’re wondering what’s behind Ethereum’s huge makeover, we’ll provide you with a quick before and after view of the network and touch on the most important points in the process.
The concept of using a decentralized public ledger to facilitate transactions across a peer-to-peer network was first introduced by Bitcoin in 2008. Years later, in 2015, Ethereum was launched, drawing inspiration from the concept popularized by Bitcoin but further expanding its capabilities by including smart contract functionalities and supporting the creation of NFTs, decentralized applications (dApps), or decentralized autonomous organizations (DAOs). Given its innovative approach, an entire ecosystem was developed around the technology provided by Ethereum, and the network became the second-largest cryptocurrency project by market cap.
However, Ethereum, just like many other cryptocurrencies on the market, started receiving heavy criticism due to the large energy consumption used for mining and the huge emissions caused by it. It was obvious that something had to change in order to make the network more sustainable, and replacing the proof-of-work mechanism that Ethereum had used since its inception with a more energy-efficient system provided the solution.
In the PoW consensus, miners have to solve complex cryptographic equations through a trial end error process in order to validate transactions and add new blocks to the blockchain, ensuring transparency, security and immutability. So, miners have to prove that enough computational power was used to solve the equation, which is where the name proof-of-work stems from. After they’ve authenticated a transaction and added it to the blockchain, miners get rewarded with coins. Unfortunately, solving these arbitrary mathematical puzzles requires the use of high-powered computers that consume a lot of energy.
As a consequence, crypto mining gave rise to mining farms – massive hubs that house a large number of computers and equally large power supplies that keep the equipment running and pumping new cryptos into circulation. That’s how Ethereum mining looked like just a few months ago.
Ethereum’s founders and community were well aware of the impact that the mining process had on the environment, so in 2020 it was decided they would switch from the energy-intensive PoW mechanism to a more energy-efficient PoS system to address the issue.
But that’s not the first time when the PoS model came into discussion. Vitalik Buterin, one of Ethereum’s co-founders, supported the idea of using a proof-of-stake consensus mechanism from the very beginning. When Ethereum launched, it was not yet possible to translate this concept into reality, so the network had to rely on the PoW model for all these years. During this time, developers were working hard behind the scenes to get the network ready for the switch.
The first step in this direction was the launching of the Beacon Chain, the new PoS consensus layer which run parallel with the Mainnet, the original PoW-based execution mechanism that has been in place since the network’s inception. On the 15th of September, the two systems merged and the Beacon Chain took over, permanently eliminating the PoW consensus.
The transition was a very complicated endeavor that required years of testing and preparation, the implication and coordination of numerous teams of researchers and developers and the help of many volunteers. Any mistake could have spelled disaster for the system, but eventually, all the hard work paid off, and the Merge was carried out without a hitch.
Ethereum 2.0, powered by the PoS protocol, looks a lot different from the former version. In this new iteration of the network, miners have been completely removed from the equation. Unlike the PoW mechanism that relied on miners to validate transactions, PoS chooses random validators, also known as stakers, to achieve consensus.
Validators don’t need to use power-hungry computers to solve complicated equations and prove they’ve done the work to secure the network and earn rewards. They are selected randomly by the system and are required to create new blocks or confirm transactions, so there’s no more competition between participants. These tasks use as much energy as an average app, and as a result, the network’s energy consumption has been slashed by up to 99%.
But the merge did a lot more than solve the energy consumption conundrum. The overhaul has also set the stage for future updates like the surge, verge, purge, and splurge, which are going to target other aspects related to the system. So, we can expect a lot more changes in the future that will hopefully enhance Ethereum’s performance and appeal.