Ethereum is preparing for The Merge: the transition to Proof of Stake expected by September 15th

It is a moment of particular excitement around Ethereum, the decentralized blockchain platform for the creation of smart contracts and whose cryptocurrency linked to it, Ether, second in market capitalization behind Bitcoin. In fact, in the next few days “The Merge“, a key event for the future and the development of the platform.

The Merge is the name with which the community around Ethereum identifies the moment of transition from the original blockchain, whose consensus mechanism based on the Proof of Work, towards a new blockchain based on Proof of Stake.

This is a long-awaited step, and postponed several times, but which is now close to completion: the latest update to Ethereum, which took place in recent days and known with the code name of Bellatrix, has in fact triggered a countdown at the end of which the passage will take place. It is not possible to establish an exact moment but only indicative, as the countdown is linked to the achievement of a particular threshold on the current Ethereum blockchain. Once that threshold is exceeded, each new block will be created only by PoS validators.

The name The Merge means “fusion”: but fusion of what and with what? Obviously, the original blockchain of Ethereum (mainnet) will “merge” and will do so with the Beacon Chainthe chain launched in December 2020 and already operating in parallel with the Proof of Stake protocol, which in these two years has worked as a test bed to verify the security and stability of the new consensus protocol, thus preparing the ground for migration.

Now that the testing, consolidation and experimentation phases are over, it’s time to make the switch, which the Ethereum developers describe with an analogy:

Imagine that Ethereum is a spaceship that is not yet ready for interstellar travel. With the Beacon Chain, the community built a new engine and reinforced hull. After significant tests, it is almost time to replace the new engine with the old means of flight. This will unite the new, most efficient engine in the existing ship, ready to cross a few light years and face the universe. “

The current Ethereum mainnet contains all transactions and smart contracts since it “came to life” with the genesis block in July 2015. With The Merge all the history of the mainnet will not be lost but will be gradually transferred to the new blockchain. Downstream of The Merge, the Beacon Chain will effectively become the new Ethereum mainnet.

We said that migration will have the effect of changing the consensus mechanism: abandoning the Proof of Work, too mining activities will cease as it will no longer have the function of producing valid blocks. Instead, these will be produced by the new Proof of Stake validators, who will be responsible for approving transactions while ensuring that no double-spending episodes occur.

For greater clarity, let’s recall the conceptual differences between Proof of Work and Proof of Stake:

  • Proof of Work (PoW): it is a form of cryptographic proof where one party (the prover) demonstrates to others (the verifiers) that a certain amount of computational effort (work) has been done for a certain purpose. In a highly participated blockchain, such as Bitcoin, Ethereum and other well-known cryptocurrencies, PoW is the basis for the consensus mechanism where network participants (miners) compete to add valid blocks to the chain, with each miner having a probability of success proportional to the computational effort employed. The main danger to network security is represented by the so-called 51% attacksIf an entity could control 51% of the computational power of the network, then it could in fact take control of the blockchain.
  • Proof of Stake (PoS): born expressly as a consensus mechanism, based on the concept that a participant in the network demonstrates his interest in playing by the rules by putting a stake at stake. In PoS systems the participants do not compete for the addition of a block, but are chosen in a pseudo-random way by the rules of the protocol. The stakes have the effect of dissuading the participant from carrying out fraudulent validations as he would lose a substantial part of the stakes and would be excluded from participating in the network. In other words, the participant who tries to break the system would risk losing much more than he can gain. The main danger to network security in this case is represented by the “nothing at stake” phenomenon, ie in which the stakes are so minimal that the risk of losing it in an attempt of fraudulent validation is convenient.

The transition to PoS will allow us to better realize what was there original vision that led to the creation of Ethereum, moving to a more scalable, safer and more sustainable network. It is in particular the issue of sustainability that is attracting attention, since with the transition to PoS Ethereum promises to cut the energy consumption necessary for the network to function by 99.95%.

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Proof of Work, on the other hand, implies the execution of a job and therefore energy consumption. Validation work through PoW is remunerative for those who perform it (you receive a reward in order to incentivize participation in the network) and, as we said above, in particular remunerative for those who first “solve” the block to be added to the blockchain: it follows that whoever has the most computing power is more likely to win the “race” and receive the reward. Energy consumption – and with it any greenhouse gas emissions – therefore tends to soar as the more computational power is put at the service of the PoW, the greater the gain that can be drawn from it. Not only, in a Proof of Work blockchain the price of the token and the computational power necessary for the validation of the blocks have a direct correlation: When the price rises, the interest in fraudulent actions increases, and as a result more work is needed to keep the network safe.

In the case of the Proof of Stake mechanism, the security of the network is directly correlated with the price of the token: with it, in fact, the stakes of the validators increase, the interest in operating respecting the rules of the game increases, but the energy consumption necessary to perform the validation operations remains the same. This happens because instead of using work – and therefore energy consumption – as a deterrent to fraudulent actions, the proof of stake requires the validator to block a certain amount of tokens as collateral (the famous stake above), which in the case of Ethereum of 32 ETH which at the current exchange rate of just under $ 1700 at the time of writing, corresponds to a total sum greater than $ 50,000.

Obviously, also in the PoS mechanism there is a reward to encourage participation: unlike the PoW which is actually a tender, the PoS mechanism chooses the validators of a block in a completely random way: there is no way to increase the probabilities that a specific node will be chosen.

If we wanted to greatly simplify the speech we can compare validation through PoW to the complex activity of a mathematician committed to solving a difficult equation, while in the case of PoS it is nothing more than a simple notarial activity of affixing a signature on a sheet. For this reason, no particular hardware is required for the functioning of the Ethereum validation software on PoS: the Ethereum developers speak of a “common notebook”, which however must remain operational 24: 7 as the protocol provides for penalties in the event that a validator did not “answer the call”. Therefore, there will always be an energy consumption, but besides being obviously incomparable to that necessary for the operation of a PoW validator, the intrinsic functioning of the PoS mechanism will have the effect of not leading to an uncontrolled growth of this consumption. Indeed, it will obviously be in the interest of validators to try to reduce as much as possible the energy consumption of the device they will use to participate in the consensus mechanism.

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The Merge not for an end point: the transition to PoS will be essential to allow further evolution of the blockchain, known as “sharding”, in the coming months which will in fact allow to increase the capacity of the blockchain and its performance in terms of the number of transactions processed per second and, at a still later stage, to execute code and support smart contracts. In order to proceed with the sharding, however, The Merge should first be completed without problems. While many seem to take a smooth migration for granted, it is worth bearing in mind that this is a complex upgrade to a platform that is currently worth over $ 200 billion and supports hundreds of decentralized applications. Not exactly a walk in the park, in short. So far three testnets have successfully migrated, albeit with some minor issues. In general, the migration process may experience some slowdown if there are many outdated nodes. According to data from Ethernodes, currently about 84% of the total number of Ehtereum nodes in operation are updated and ready to face the transition.

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Vitalik Buterin, creator of Ethereum

If the migration were successful and Ethereum actually managed to bring greater security, scalability and sustainability, then the blochcain conceived by Vitalik Buterin could take on a renewed and increased interest from companies and institutional investors. In the current state of affairs The Merge should take place between 13 and 15 September next: the car in motion, the results will be seen in a week.

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Ethereum is preparing for The Merge: the transition to Proof of Stake expected by September 15th

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