Ethereum’s transition to a new consensus mechanism is a long-awaited event in the cryptocurrency community, but it also divides users into two groups. One speaks of the definitive death of this network, as they consider Proof-of-Stake to be an extreme weakening from the security point of view. On the other hand, the other highlights significantly lower energy requirements and believes that it is ETH 2.0 that will fully demonstrate that PoS represents the future of cryptocurrencies. The answer will probably be provided only by the actual implementation of this change, which we can expect in a few months, according to their developers.
Proof-of-Work on Ethereum is finally ending
Among other things, during a recent conference call, the Ethereum development team finally set a date for an event known as the Ethereum Merge. According to the latest roadmap, this should happen on September 19, and other dates for testnets and further updates have also been defined. However, the new roadmap is non-binding, and users have been advised to follow Ethereum’s official channels to confirm the dates.
Given that the transition to PoS and individual steps of the process have often been delayed, the new date has become the subject of controversy and sceptical comments. On Twitter, one of the participants pointed out that in the statement, we found out the Merge date, but not the year, and that it will happen in 2050 at the earliest. Ethereum representatives, however, assume that only a significant unforeseen circumstance could postpone the Merge.
PoS on one of the most used blockchains will be a big test
Ethereum Merge will be the moment of merging the functioning of two blockchains operating in parallel. The first is the current mainnet, which works on the PoW mechanism and Beacon Chain, which in simplicity is the PoS version of ETH and has been operating since December 2020. According to published information, all tests are running without significant problems, and the last test should take place on the Goerli testnet.
Testnets allow developers to try out new updates and changes to the blockchain without the risk of the main Ethereum network collapsing, which would impact real users. Last week, even Merge itself was tested on the Sepolia testnet.
With the Merge, Ethereum will move into a new era, and the main goal is to reduce the energy consumption of the network’s operation. Currently, the ETH blockchain is run by miners from all over the world, who compete with each other for rewards for verifying individual blocks. This consumes a huge amount of energy.
After the Merge, so-called validators will take care of this activity. This term refers to an entity that has locked at least 32 ETH into the Beacon Chain as a form of deposit. If it does the job (block verification) correctly, it will get newly created ETH and transaction fees as a reward. However, if it breaks the rules, it may lose the deposit and the possibility of verifying transactions.
Other popular PoS-powered blockchains include Solana, Avalanche, and Cosmos. However, none of them is as extensive as Ethereum in terms of activity. For example, according to estimates, it covers up to 62% of all DeFi activity, and ETH is also the second largest cryptocurrency in total market capitalization. This is also why Ethereum Merge is considered the biggest test of the PoS consensus mechanism in the history of cryptocurrencies.
We probably will not get rid of high transaction fees anyway
Many users of the ETH blockchain assumed that reducing the energy requirement of block verification would directly project to the high of transaction fees of this network. Fees on Ethereum have been a long-term criticized aspect of the entire project and sometimes climb to astronomical heights. Many users and projects, therefore, switched to competing blockchains such as Solana and Cardano.
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However, according to DeFi trader Vivek Raman, the high fees are caused by the increased demand for transactions and not by what consensus mechanism the given blockchain works on. It can even be assumed that when the demand for services on the aforementioned competitive blockchains increases, their main advantage in the form of lower fees would also be lost. So we are probably waiting in vain for the reduction of ETH fees, and the only solution is to move the activity to the second layer solutions.