The Ethereum Proof-of-Stake Merge: All You Need to Know | by LBank Exchange | LBank | Aug, 2022

From the LBank blog.

The Ethereum Proof-of-Stake Merge: All You Need to Know

Ethereum’s mainnet will soon merge with the beacon chain proof-of-stake system, marking the end of proof-of-work for Ethereum. This will be a big transformation for Ethereum as the transition has been in the works for a couple of years.

The Ethereum Proof-of-Stake Merge is a soft fork, meaning it will be backwards compatible and happen on schedule, with no need to change your blockchain.

Beacon Chain (proof-of-stake), the most notable change during the Ethereum Classic Fork, is something that has been in development for a very long time. It is one of the major reasons why Ethereum was launched as a public blockchain platform in an effort to alleviate scalability issues and make it easier for decentralised applications (DApps) to run on the network.

The key issue with proof-of-work mining is that Application-specific integrated circuits (ASICs) cannot be used because they do not have enough processing power to complete transaction validations and be rewarded with block rewards or gas fees. Instead, only CPU and Graphics Processing Units (GPUs) rigs can mine Ethereum.

Why Ethereum is Moving Away from Proof-of-Work

There are several reasons Ethereum opted to shift from PoW to PoS. The most prominent motivation among them is that proof of work wastes electricity as well as generates electricity waste resulting in environmental concerns.

This is because the second largest blockchain, Ethereum, relies on proof-of-work, a “consensus mechanism” that effectively entails a large number of computers working together to solve a cryptographic problem in order to add new data to a database in exchange for a reward.

Statista reports that throughout 2021, the energy consumption index for Ethereum increased and surpassed that of nations like Colombia or the Czech Republic. Similarly, between October 2020 and March 2021, the network fees it pays miners anytime a payment transaction is started on the blockchain more than tripled. Due to the increase in its gas price for all customers, several users began to protest about the ETH transaction costs.

The table below shows Ethereum energy consumption worldwide from May 2017 to January 10, 2022.

Source: Statista

Similarly, the network fees paid to miners whenever a payment transaction is initiated on the blockchain more than tripled between October 2020 and March 2021. Consequently, its gas price also rose for all users which resulted in many complaining about ETH high gas fees or rather the transaction fees.

PoW pits miners against one another to solve a challenging mathematical problem. Any miner who solves the issue first receives newly created coins in exchange for updating the ledger by adding a new block to the chain. This calls for a significant quantity of computational power and, consequently, electricity.

The Merge Explained

The Merge is the union between Ethereum’s new Beacon Chain proof-of-stake consensus layer with its current execution layer. Instead of using energy-intensive mining, it uses staked ETH to safeguard the network. An incredibly exciting step toward achieving the more scalability, security and sustainability goals of Ethereum.

While the Beacon Chain operates concurrently with proof-of-stake, the Ethereum Mainnet, with all of its accounts, balances, smart contracts and blockchain information will continue to be secured by proof-of-work. When these two systems eventually converge at the next Merge, proof-of-stake will completely replace proof-of-work.

Ethereum Proof-of-Stake

The Ethereum Proof-of-Stake technology is currently a unique blockchain that is going to support the first ever major coin swap, from the current PoW based blockchain to a PoS based one.

This means users will have to convert their coins from the current one over to the new proof-of-stake version. Firstly, for this conversion to happen, it will be necessary for every Ethereum holder to upgrade their wallets before the hard fork date.

PoS will replace ‘miners’ with ‘validators’ and they will be easily identifiable, allowing users to hold them accountable. Each validator will have an effective balance of stake. This will enable the network to reach consensus quicker, resulting in faster transactions.

To encourage proper behaviour, validators will receive rewards, penalties and punishments through block proposal attestation and sync committee.

Instead of buying mining rigs and using them like in PoW, In PoS, you will buy tokens and put them to work.

When is the Merge Taking Place

Ethereum developers have announced that the merge will happen soon after developers have run through the merge on multiple testnets prior to Goerli. The tentative date set for Ethereum’s transition to proof of stake is now September 15, 2022. It still depends on what developers uncover post-Goerli testnet merge, the date might change.

Meanwhile, the final fork will occur on September 6, 2022, when the software for the new consensus layer will be rolled out. At the moment, the Goerli Testnet has activated PoS, which is the last and the most significant dry run for Ehereum before the merge happens on the mainnet.

If eventually the merge takes place, it means that the second biggest blockchain’s energy usage will be cut down significantly to about 99.95%. Furthermore, network congestion will drastically decrease.

Buy, Sell and Store Your Ethereum (ETH) on LBank

While everyone awaits the much-anticipated merge, LBank still remains the best crypto exchange to buy, sell and even store your Ethereum (ETH) coin.

As per CoinMarketCap’s categorisation, the exchange keeps steadily climbing the ladder on the top crypto exchange list by volume and market capitalization.

Get in right now and experience the best of cryptocurrency on the trading platform. All you have to do is to download the LBank app with your iOS or Android or conveniently use your desktop for all your trading activities.

Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.

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