Cryptocurrency

How Ethereum Proof of Work will Work after the MERGE Upgrade

How Ethereum Proof of Work will Work after the MERGE Upgrade

Key Takeaways

  • Ethereum Merge has been ongoing since 2020 with its third and final Goerli Testnet finally completing the Merge in August 2022.
  • The Ethereum Developers have commented that the Ethereum PoS merge is set to be completed by September 2022. A tentative date has also been set by the ETH developers; i.e. September 15, 2022.

Ethereum Merge Explained

Is official Ethereum Merge Date confirmed? Yes! According to the Ethereum developers the Merge is set to be completed by September 2022. As exciting as the news is, if you have not been keeping tabs on what has been happening within the Ethereum ecosystem and is a little confused as to what the Ethereum Merge is, just keep scrolling. 

The Ethereum Merge is a transition of the Ethereum network from its Proof of Stake mechanism to the more energy efficient Proof of Stake consensus mechanism.

To define the Ethereum PoS merge in detail, the Merge represents the joining of the existing execution layer of Ethereum (the Mainnet we use today) with its new proof-of-stake consensus layer, the Beacon Chain. It eliminates the need for energy-intensive mining and instead secures the network using staked ETH.

However, the Ethereum Merge has been one of the biggest issues the Ethereum network has been plagued with. Being one of the most popular networks amongst developers for building dApps, smart contracts, and DeFi protocols, ETH has been plagued with issues like network congestion and transaction fee. Ethereum’s transaction speeds are now much lower than some of its closest competitors and its gas fees have skyrocketed amid the surge of interest in DeFi.

As a step toward a solution to the persisting issues, this new Ethereum Merge Update is slated to solve a large chunk of those problems and keep the network ahead of its competition and also reward those who have been with them along the journey and staked actual value for the Ethereum 2.0.

How does Proof of Stake work?

Before diving into the workings of Proof of Stake, here is a quick description of what Proof of Stake is. To put it in simple terms, Proof of Stake (PoS) is essentially a type of consensus mechanism that is used to verify new transactions happening over the blockchain network. Since blockchains are devoid of any centralized authority governing the system, PoS is one of the methods used by the networks to ensure that every data saved on the network is valid.

In a Proof of Stake model, crypto owners are essentially allowed to ‘stake’ their coins and hence be able to create their own validator nodes. Staking is when you pledge your coins to a smart contract on the blockchain, and thus become eligible to verify transactions and get rewarded for it.

The interesting fact is that staking also provides a measure of flexibility – despite the fact that your coins are locked up once staked – you can un-stake them whenever you feel the need to trade them or anything else.

The process that ensues when a block of transactions are ready to be processed, the crypto Proof of Stake protocol chooses a validator node to review the block. It is now the validator’s job to check whether the transactions in the block are accurate – if so, the block is added to the blockchain and the validators receive crypto rewards for their work. On the other hand, if the validator proposes adding a block with inaccurate information, then that person stands to lose some of their staked holdings as a penalty.

Proof of Stake vs Proof of Work

The most important difference between the two most used consensus mechanisms is that Proof of Work consumes a lot of energy and requires mining while Proof of Stake is energy conscious and does not require miners. Besides the basic differences – Proof of Work vs Proof of Stake, there are a few fundamental differences that set PoS and PoW apart from each other. All these differences have been enumerated in the explanation above, but here are the differences in a bulleted manner:

  • PoW is the first generation of consensus mechanism that was born with the birth of Bitcoin, while PoS is the next generation of a consensus mechanism and some of the biggest networks employing this method include Cardano (ADA) and Algorand (ALGO). Even Ethereum, the largest smart contract blockchain out there is slated to transition from PoW to PoS.
  • PoW involves competing to solve a complex mathematical problem to get the chance to verify the block while PoS works on the principle of staking.
  • Due to the difference in principles – PoW uses a lot more energy to do verify one block, while PoS is able to do that same function at a tiny fraction of what PoW uses.
  • PoW is a much slower process due to the way it functions while PoS is faster than PoW in verifying transactions by an order of magnitude, which is also due to the way it performs the consensus

Why is Ethereum Switching to Proof of Stake?

Since the beginning of the crypto ecosystem, Ethereum has been a busy network. The access to smart contracts has given way to crypto enthusiasts and digital creators to build various DApps and has helped in giving rise to NFTs! With over 200 DApps currently functioning on the Ethereum blockchain, the number of transactions taking place within the network has skyrocketed! However, the surge in the usage of the Ethereum network was not in tune with the transaction speed, the energy consumption and the gas fees any crypto users had to endure. Thus, the transition from PoW to Ethereum Proof of Stake!

Ethereum Proof of Stake

Current Issues With Ethereum

With the transition of Ethereum after the Ethereum Proof of Stake merge, the crypto community has been asking questions like ‘Will Ethereum become energy efficient?’ With the minimum computational energy required in the Proof of Stake mechanism, the transition will make Ethereum energy efficient. Apart from the energy concerns, here are some of the other issues that Ethereum had:

  • High Gas fees due to heavy transaction rate
  • High energy consumption due to intensive mining equipment and methods.
  • Slow transaction rates; with upto 15 transactions per second

Additional Read: Ethereum Foundation Issued Warning about ‘The Merge’

Will Ethereum become energy efficient after the Merge?

With the transition of Ethereum to the Ethereum Proof of Stake consensus mechanism, the Ethereum developers have commented on Ethereum becoming 99% more energy efficient than when Ethereum was working on the Proof of Work consensus. This Ethereum PoS merge will also allow the network to scale and potentially perform as many as 100,000 transactions per second.

Benefits of Switching to Proof of Stake

While we have stated the improvements that the Ethereum network will be able to provide the crypto community with after the transition to Ethereum Proof of Stake, here are some of the benefits of Proof of Stake that needed a mention: 

  • Higher Scalability: With a faster way to validate the transitions, PoS provides higher transactional speed.
  • Less Manipulation: As PoS cuts the need for complex computations, the power to validate transactions is transferred to those with the most holdings of the network’s native currency. Since these players have a significant stake in the system, they are less likely to manipulate it. 
  • Adaptable: As the crypto space is evolving, so is the PoS mechanism. Thus, its versatility helps it be adaptable across the ever-evolving crypto space.

Why is Proof of Stake Greener than Proof of Work

While the Proof of Work mechanism is a way to secure the network, the transactions on the Ethereum blockchain via this mechanism are validated by miners. Miners then put together the transactions into ordered blocks and add them to the Ethereum blockchain. The ability for any miner to add new blocks only works if there is a cost associated with mining along with the unpredictability about which specific node submits the next block. These conditions are met by imposing the PoW mechanism. For a miner to be eligible in submitting a block of transactions, they must be the first to submit the solution to a computationally expensive puzzle. Such an extensive process of adding blocks to the blockchain increases the network’s energy consumption and as a result, generates hardware waste.

While coming to the Ethereum Proof of Stake mechanism, it makes use of validators instead of miners. Much like miners, validators perform similar functionalities by staking ETH as collateral against any dishonest behavior. The staked ETH can be destroyed if the validator misbehaves, which strongly incentivizes active and honest participation in securing the network without requiring large energy expenditure.

Additional Read: Will Ethereum 2.0 Replace Ethereum?

Ethereum Proof of Stake Energy Expenditure

As per the Ethereum.org blog, the estimates based on the current Beacon Chain suggest that The Merge to proof-of-stake could result in a 99.95% reduction in total energy use, with proof-of-stake being ~2000x more energy-efficient than proof-of-work. The energy expenditure of Ethereum will be roughly equal to the cost of running a modest laptop for each node on the network.

How Ethereum Proof of Stake will Work?

A Greener Ethereum: Impact of the Merge on the Ethereum Ecosystem

The rate of energy consumption by the Ethereum network has historically been substantial. However, there has been some noticeable work done by the ETH developers. The result of which we see in ETH transitioning from the energy-hungry PoW to energy-efficient PoS block production. 

Along with the changes and evolutions taking place within the crypto space, there has been some interesting development within the highly active regenerative finance (ReFi) community building on Ethereum. ReFi applications use DeFi components to build financial applications that have positive externalities benefiting the environment. The decentralized, and blockchain technology features of Ethereum help in making ETH the ideal base layer for the ReFi and solarpunk communities. According to an official post from Ethereum.org, after The Merge, the technology and philosophy of Ethereum will finally reconcile, and Ethereum should become an environmentally-positive technology.

How to buy Ethereum in India

Buying crypto in India is pretty easy. With the massive adoption of the crypto space since 2020, there has been some significant improvements and introductions to various crypto exchanges. CoinDCX, India’s most valued crypto app can be your go-to crypto investment app to buy Ethereum in India. 

  • Sign Up for the CoinDCX account: Enter a valid email address and a user name on the sign-up page. Once the Email Id has been verified, set a strong password to secure your account.
  • Verify the account: You need to complete your KYC, to buy ETH on the CoinDCX platform. All you need to do is upload the documents and your account will be set up in 15 minutes.
  • Buy ETH: After the account has been verified, you can deposit any amount of fiat currency you are comfortable with and start your crypto journey!

Also Read:

Ethereum Price Prediction Weekly

Ethereum vs Ethereum Classic

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