In just a few weeks, Ethereum is about to undergo the most significant change in its seven-year history. Until now, the Ethereum blockchain has been protected using a system called “proof-of-work”, which consumes more electricity than the entire country of Belgium. Next month’s switch to a new system called “proof-of-stake” is expected to reduce Ethereum’s energy consumption by 1,000 times.
The stakes are high. Chaotic change means chaos for many crypto projects built on top of Ethereum. A smooth transition will be the culmination of years of careful planning by Ethereum’s core developers. Over the past year, developers have repeatedly pushed back “The Merge” date to give themselves more time to prepare. They are Completed the final dress rehearsal On August 10, clearing the way for a transition in mid-September.
The immediate effect of a successful merger is to put the world’s Ethereum miners out of work. In the last seven years, there have been thousands of people Bought high quality graphics cards To help maintain the Ethereum blockchain and earn newly generated Ether in the process. The new system for updating the Ethereum blockchain doesn’t require the same kind of beefy hardware or the massive electricity bills that go with it. Hence the price of used graphics cards will go up Continued decline As Ethereum miners exit the industry.
But the switch to proof-of-stake is more than just an energy-saving measure—it’s a key change for the Ethereum network. Ethereum founder Vitalik Buterin believes Merge will lay the foundation for a series of future upgrades that will allow the network to handle much larger volumes of transactions in the coming years. But critics worry that the new plan could cause the Ethereum network to become too centralized — and therefore vulnerable to government regulation.
From Proof of Work to Proof of Equity
At a high level of abstraction, here’s how any blockchain works: Someone on the network proposes a block containing a list of recent transactions. Other network participants verify that the block follows the rules of the network. If enough other network participants accept the block, it becomes the “official” next block in the chain. As long as the majority of network participants are honest, users can be confident that transactions accepted by the majority of the network will not be later removed or altered.
A major challenge for any blockchain project is preventing a malicious party from creating multiple sock puppet accounts to “stuff the ballot box,” outwitting honest participants and thereby disrupting past transactions. The big insight of Bitcoin’s eponymous founder Satoshi Nakamoto — the one that made Bitcoin possible — was to solve this problem using the principle of “one hash, one vote.” In the Bitcoin network, whoever has the most computing power—specifically, the ability to compute SHA-256 hashesHas a lot of influence over which blocks are added to the blockchain. As long as honest miners have more hash power than malicious miners, users can be confident in the integrity of the blockchain and the integrity of payments made using the Bitcoin network. (See us An in-depth bitcoin explainer (for details on how it works.)
When Vitalik Buterin launched Ethereum in 2015, he used a variation of the Nakamoto scheme. At that time, Bitcoin mining was already dominant Special silicon Optimized for calculating a large number of SHA-256 hashes, locking ordinary bitcoiners out of the mining game. So Buterin was developed as a New mining method Designed to be “memory-hard” – so hard to overclock with custom hardware. As a result, Ethereum mining is still mostly done using off-the-shelf graphics cards, allowing ordinary Ethereum users to participate.
But the economics of the two networks are fundamentally similar. As the values of Bitcoin and Ether have risen, it has become profitable for people to spend more money on mining hardware and electricity to create new coins. While this makes the networks more secure, both networks consume astronomical amounts of electricity and therefore run high carbon emissions.
The Bitcoin and Ethereum communities have responded very differently to this issue. Satoshi Nakamoto disappeared from public view in 2011. In his absence, Bitcoin culture has become increasingly conservative. Many Bitcoiners They are stubbornly opposed Changing Bitcoin’s mining system is feared the changes could open the door to centralization and eventual government control. As a result, Bitcoin is unlikely to move away from proof of work in the near future.