Ethereum 2.0

Next month Ethereum is said to make ‘The Merge’ from the proof of work (PoW) consensus mechanism to proof of stake (PoS), newly named Ethereum 2.0. Why is this big news you might ask? Mainly because it’s never been done before. And if ‘The Merge’ takes place successfully, this opens the door for many new possibilities in the blockchain world.

‘The Merge’, as it’s suspensefully been labeled, has been underway now since it was first announced back in 2017. Originally slated to be launched by 2019 there have been a few delays along the way, however with recent successful testnets complete the expected launch is now scheduled for some time between 15^th and 20^th of September 2022. A testnet is a network designed for the purposes of experimentation, so as not to cause any damage or disruption to the main network until all the kinks are worked out before implementation. The most recent test, named Goerli, was the third and final test, following Ropsten and Sepolia a few months earlier this year.

Why the move by the second largest cryptocurrency in the market?

The three S’s; speed, scalability, and sustainability.

Speed; currently processing a transaction on Ethereum can take anywhere between 15 seconds to 16 minutes, and occasionally you could be left waiting a few hours! This depends on a number of factors, however, the move to Ethereum 2.0 is said to greatly improve both the transaction speed and cost (gas fees).

Scalability; the more services developed to use Ethereum the greater the demand, which impacts the fees and speed, therefore the network needs to be scalable to be capable of increasing with the demand.

Sustainability; cryptocurrency has a very poor environmental image due to the huge energy requirements the PoW consensus mechanism uses to process/mine new transactions/coin. The move to PoS will greatly reduce the energy and infrastructure required thus resulting in a lower carbon footprint.

How will ‘The Merge’ actually take place?

It’s easy to get a bit lost at this point. In December 2020 Ethereum launched a new blockchain called ‘The Beacon Chain’ using the PoS consensus mechanism. And, as you’ve all been hanging on the edge of your seats in suspense from the name, ‘The Merge’, is the joining of the current Ethereum PoW blockchain, referred to as ‘Mainnet’, to ‘The Beacon Chain’. Ethereum’s analogy to help explain this…..

“Let’s consider an analogy. Imagine Ethereum is a spaceship that isn’t quite ready for an interstellar voyage. With the Beacon Chain, the community has built a new engine and a hardened hull. After significant testing, it’s almost time to hot-swap the new engine for the old mid-flight. This will merge the new, more efficient engine into the existing ship, ready to put in some serious lightyears and take on the universe.”

Of course, there are far more in-depth explanations for how this whole process is going to work, and if you’re interested, we’ve included a few helpful links at the bottom of the page. There is obviously a lot of risk with this transition, however with great risk comes great reward. In the 24 hours following the success of Goerli, Ethereum’s Ether cryptocurrency rose 14%, and whilst there is plenty of skepticism about whether ‘The Merge’ will ultimately be successful, at this stage only time will tell.