The forever ‘coming soon’ and seemingy constantly delayed Ethereum (ETH) Merge is the next big thing to affect the entire crypto space say analysts. The move from Proof-of-Work (PoW) to Proof-of-Stake (PoS) will be welcomed by crypto naysayers complaining about the powere usage for the computational process of verifying transactions on the blockchain. Following on in this article is an in-depth overview of the ETH 2.0 merge, what investors and enthusiast can expect after the merge and what ETH 2.0 with PoS will look like.
A Quick Overview of Ethereum’s Problem
The expansion of the blockchain sphere with many dapps launched on the Ethereum blockchain has placed a lot of pressure on the network. The development of other areas like decentralized finance (DeFi), and NFTs further accentuated Ethereum’s scalability issues. The increase in Ethereum’s workload further increased its scalability issues.
Gas fees on Ethereum are currently ridiculously high and the entire network is generally slow. To close this gap, ethereum reveals plans to launch its ETH 2.0 update, The Merge is close to fruition as Ethereum Merge draws near. A major part of the Ethereum Merge is the move from a Proof-of-Work (PoW) to a Prof-of-Stake (PoS) consensus mechanism. This further begs the question of ‘Why move from PoW to PoS?’
Why Proof-of-Stake (PoS) in Ethereum?
There are a lot of reasons why the Proof-of-Scale (PoS) consensus mechanism tops the Proof-of-Work (PoW) mechanism. We would briefly consider three reasons why Ethereum is moving to a PoS mechanism, according to Vitalik Buterin.
1. Decentralization
This is one of the non-negotiable characteristics of the blockchain ecosystem. While the PoW network is fairly decentralized, PoS networks offer a more decentralized option, being more censorship-resistant and fairly impossible to detect or track.
2. Security
To buttress this fact, Ethereum co-founder Vitalik Buterin, did a brief calculation on the cost of attacking a PoS and a PoW network.
For a GPU-based PoW network, a hacker will need approximately $0.26 per day to attack the network. Interestingly, this cost will also reduce to $0 over time. An ASIC-based PoW network will require a hacker to spend about $486.67.
3. Recovery From Spawn Camping Attacks
With the number of nefarious individuals looking to capitalize on loopholes in the crypto space, it is expedient that networks remain secure and vigilant. It is also important to be adequately prepared for the worse.
Generally, a GPU (PoW) network is susceptible to an SCA (Spawn Camping Attack). PoS networks, on the other hand, are highly resistant to such attacks. They also recover faster from attacks due to an inbuilt slashing feature. The feature makes it possible to confiscate a hacker’s funds without affecting the entire network.
These three reasons as highlighted by Buterin are the major reasons why ETH is moving to a PoS consensus.
Major Changes Expected Post Ethereum Merge
In a Twitter thread, VivekVetures expounds on the upcoming Ethereum merge, citing important changes, ETH users should look out for.
- Layer-1 Fees Will Remain The Same – As opposed to popular belief, Ethereum Merge will not in any way reduce gas fees on layer-1 chains. This is because gas fees have no relationship with the consensus mechanism in use. They are, however, mostly a function of blockspace demand. To enjoy reduced gas fees, it is advisable to make use of Layer-2 chains.
- Inflation Drop – According to analysis, We expect a strategic drop in inflation following the merge. Inflation on the Ethereum chain is expected to drop to 0.22% from a whopping 4.3%.
- Better Security – As a PoS consensus is more secure than a PoW consensus, Ethereum will enjoy better security post-merge.
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Increase in Staking Yield:
Staking yield on Ethereum will increase by about 50%. The current staking yield stands at about 4.2%, this will increase to over 6% after Ethereum Merge.
- Better Sustainability – ETH network will be more energy-efficient. Even more sustainable than Bitcoin. The network will use about 99% less electricity than its PoW alternative.
- Reduce Sell Pressure – The next 6-12 month period after the Ethereum Merge will record no structural sell pressure from issuance. This means that validators cannot withdraw block rewards. Only tips and MEV can be withdrawn. This, in turn, will result in zero sell pressure.
Ethereum enthusiasts should also expect better scalability, a deflationary monetary policy, etc.
