Ethereum (ETH) has launched Kiln, the last testnet that its development community will use before the blockchain network’s long-awaited transition to a proof-of-stake (PoS) consensus mechanism. It should only be a matter of time before the “merger” scheduled for the second quarter of 2022.
This event – which will see the integration of the original execution/settlement layer of Ethereum with the new consensus layer of the Beacon chain – is likely to be one of the biggest events in the crypto industry in 2022. However, also Exciting as it may be for Ethereum and the crypto community, it will not come without controversies, and could reignite rivalry between Bitcoin (BTC)/proof-of-work (PoW) and Ethereum/PoS maximalists.
Cryptonews.com spoke with developers and members of the Ethereum community, as well as industry players outside the Ethereum community to find out what the expected impacts of this transition are.
The debate on decentralization, security and equity
“I think there are a lot of misconceptions around the merger, not just from bitcoiners. Probably the biggest ones are around decentralization, security, and fairness,” he said. Marius van der Wijdendeveloper of Ethereum.
Indeed, in the months (if not years) leading up to the merger, many disputes arose over proof of stake. One of them is that PoS is not really decentralized, in that it just allows already wealthy people to buy big stakes and effectively control the network.
This view is not shared by the developers and coders working on the particular PoS version of Ethereum. Indeed, according to van der Wijden, the PoS implementation “excels” in the aforementioned categories of decentralization, security, and fairness.
“We have made it so that normal users with their mainstream-grade hardware can both follow the chain and offer blocks. The capital required to become a staker is 32 ETH, which is relatively low (it was ~$5,000 at the start of the beacon chain) and there are no huge economies of scale here,” he told Cryptonews.com. At the time of writing, ETH 32 is worth nearly $109,000.
Responding to perceptions that a super-rich elite could effectively monopolize the network, van der Wijden also suggests that operating 10 validators is only marginally more efficient than operating one, since most costs are related to capital requirements. According to him, this contrasts favorably with what is usually found with PoW cryptocurrencies like Bitcoin.
“In the case of proof of work, the big mining companies buy the hardware directly from the wholesale manufacturer and get prices that are much better than those of a normal user. […] There is an argument that in the case of proof of work only the rich get richer, but I would say that is even more true in the case of proof of work because mining companies can take advantage of their economy of scale far better than any home miner,” he added.
Naturally, people who are more in the bitcoin camp disagree on the superiority of PoS over PoW. jimmy songeducator, author and bitcoin programmer, is one of them and he told Cryptonews.com that most discussions surrounding the Ethereum transition miss a very important fact.
“PoS does not solve the problem of Byzantine generals. Therefore, it does not provide decentralized consensus,” he said.
Therefore, the merger will not make Ethereum more robust against potential attacks involving bad actors. However, Ethereum developers do not share this opinion: Marius van der Wijden explains that Ethereum will introduce a number of solutions to prevent common attacks such as “nothing at stake” and “long range attacks”.
“Nothing at Stake” means that it is trivial for a validator to offer two blocks. This attack is mitigated by bet reduction if detected,” he said.
Similarly, van der Wijden says long-range attacks are solved by creating distributed checkpoints by client software. And generally speaking, he also claims that PoS allows the community to punish attackers, while PoW does not.
“If a PoW network is 51% attacked, there is no way to remove the GPUs from the attacker […] In a PoS system, the community can reach consensus and eliminate the attacker without impacting honest stakers.”
Gas charges and scaling
Mr van der Wijden acknowledges, however, that some people may be expecting too much from the initial merger, especially when it comes to gas charges, which have risen notoriously at various times over the past year.
“The merge itself will only slightly increase the throughput of the chain (going from an optimistic block time of 13 seconds to an effective block time of 12 seconds). This is such a small change that it won’t have a noticeable effect on gas charges,” he said.
The developer also explains that the initial merger is only the first step in a relatively long process, and its immediate effect will not be to make Ethereum much more scalable. That said, greater scalability will be the end goal of Ethereum as a proof-of-stake based blockchain network.
“Ethereum scalability will be achieved, like Bitcoin, by using Tier 2 solutions such as payment channels or rollups. What PoS will enable is sharding: it is much easier to build sharding on PoS than on PoW,” he said.
For Lex SokolinHead of Financial Technology at ConsenSys, an Ethereum-focused blockchain company, the most glaring misconception about the merger, and Ethereum more generally, is its macroeconomic position within the crypto market and ecosystem. Indeed, while BTC is often seen as the industry’s “store of value,” ETH is often seen as just another utility token, which Sokolin says isn’t entirely accurate.
“There are now choices for decentralized compute, whether it’s on Polygon, or rollups, or other chains like Solana. But Ethereum happens to be the most reliable compute layer given its scale, its history and performance, as well as its connectivity to scaling solutions,” he told Cryptonews.com.
For Mr. Sokolin, Ethereum’s status as the largest blockchain network with smart contracts means that the ETH token is an important asset, since it enables the use of blockchain. Additionally, as the merger progresses, inflationary incentives in the network will slow down, leading to an “ultrasonic” version of Web3 currency.
“It is the very basis for storing value in the Web3 economy, which will only be enhanced by the post-merger economy,” Sokolin added, hinting that ETH will become, much like the BTC, a kind of store of value.
The Eternal Bitcoin vs Ethereum Debate
In addition to changing Ethereum and how it works, the merger will most likely escalate the seemingly endless “war” between Bitcoin and Ethereum maximalists.
“I think there will be more hostility between communities, as Bitcoin supporters will have another argument for disliking Ethereum (the perceived centralization and insecurity of PoS) and Ethereum supporters might start to questioning Bitcoin’s energy consumption. I think the two communities are already divided enough, at least the maximalist communities,” said Marius van der Wijden.
For some commentators, the rivalry between the two networks is not as heated as it seems, which means that the merger will not change much.
“The rivalry between BTC and ETH is more theater than substance, as they play different roles in the cryptocurrency landscape. BTC is the undisputed digital gold, the reserve currency, while ETH is the currency that powers the Ethereum economy,” said Alan Chiufounder of Boba Network.
However, if reports of the rivalry between Bitcoin and Ethereum are overblown, industry figures expect the merger to change the dynamic between the two networks, as well as the values of the broader crypto ecosystem and of its users.
As Mr. van der Wijden says, “I hope the move to PoS will inspire more very environmentally conscious users to join Ethereum and build on it. We’ve seen a lot of hate, especially against NFT projects, for their perceived environmental impact.”
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