This is it, we're here!
After years of development, Ethereum, which is the second largest blockchain on the planet, is about to change its consensus algorithm from Proof-of-Work to Proof-of-Stake.
This development, dubbed "The Merge", is a historic event for two reasons:
No blockchain (at least of this size) has ever changed its consensus algorithm. Ethereum has not undergone such a radical change since its creation in 2015. The Merge, which is expected to take place around 14 September, is highly anticipated because it will enable Ethereum to significantly reduce its carbon footprint.
How? By switching to Proof-of-Stake, which does not require cryptos to be mined (we explain everything below). Instead of miners, there will be validators whose activity is much less energy-intensive.
The switch to PoS is not, however, without raising certain questions, particularly about security and decentralisation... To help you understand everything about Merge and its potential consequences, we've prepared a special report just for you.
1/ What is Proof-of-Stake?
There are currently two main consensus algorithms for cryptocurrencies. There is Proof-of-Work (PoW) and Proof-of-Stake (PoS).
Used by Bitcoin, and Ethereum for a few more days, PoW is based on a fairly simple system: mining. To produce a block and record transactions on the blockchain, miners, who use computers, will carry out complex calculations and be rewarded in bitcoins according to the power they make available to the network (energy is proof that they are working). The more participants there are in the network, the more complex the calculations, and the more energy is needed!
The Proof-of-Stake works differently and consumes much less energy since there is no need to "mine". To take part in the network, you need to "validate" the blocks by proving that you own the network's cryptocurrency. In this case, ether.
To guarantee the security of the network, validators must "staker", i.e. immobilise cryptos. Those who try to cheat lose their immobilised capital. Those who play the game and secure the network are rewarded with newly created cryptos.
2/ Why didn't Ethereum opt for Proof-of-Stake from the start?
Ethereum was dreamed up in 2014 and launched in 2015. At the time, there was only one other major cryptocurrency, bitcoin, and it worked with Proof-of-Work. So it was a no-brainer for Ethereum's designers to rely on a technology that had already been tried and tested.
"In the early days, there was a lack of hindsight on Proof-of-Stake consensus. The first ones like Tendermint and Tezos had barely been documented, so it was complicated to start with this consensus," rewinds Jérôme de Tychey, president of the Ethereum France association and organiser of the EthCC, one of the world's biggest ecosystem events.
But from the outset, Vitalik Buterin and the Ethereum team had explained that the PoW was just one step before the transition to the PoS. "It was obvious that the Proof-of-Work would one day be discarded because of its energy consumption," adds Jérôme de Jérôme de Tychey. And that day has now arrived.
3/ To what can we attribute The Merge's repeated delays?
According to the initial roadmap, the switch to Proof-of-Stake was supposed to take place in 2017, i.e... five years ago! What has happened to explain this delay? Quite simply because making such an update is anything but straightforward. "Designing a good proof of stake is a real challenge", explains Jérôme de Tychey. "Not all of them are equal, and we had to guarantee Ethereum's decentralisation over the long term," he adds.
Failing to reach a consensus among Ethereum developers, Merge has been postponed several times. The paradox is that many less energy-intensive "competitors" such as Tron, BNB Chain, Avalanche, Solana and others have taken advantage of this to launch and take a share of the market.
According to analytics site DeFi Llama, Ethereum and its ecosystem account for 64% of decentralised finance activity; by early 2021, it was 97% 🤔.
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