On September 15, 2022, a truly historic moment occurred for the entire cryptocurrency market. The blockchain of the second-largest cryptocurrency by market capitalization, Ethereum, transitioned from Proof of Work to Proof of Stake algorithm. A small
spoiler: the merger went smoothly, and the network successfully updated despite ongoing disputes and conflicting opinions among members of the crypto community.
1. What does Proof of Work & Proof of Stake have to do with ecology?
For beginners, let me explain that a consensus algorithm is a mechanism that checks compliance with certain rules. In the case of blockchain, it verifies that the transaction is valid and the protocol is followed. When using the Proof of Work algorithm, the right to add a block with a transaction to the blockchain is given to the participant who solved a mathematical problem the fastest and provided evidence of its solution to other participants who, in turn, confirmed the correctness of this solution. This process is called mining.
In the case of the Proof of Stake algorithm, the right to add a transaction is given to the participant who has a certain amount of coins staked on their account.
The goal of both algorithms is the same - to add a block with a transaction to the blockchain. However, while PoW uses a competitive verification method that requires increasing amounts of electricity, as the difficulty of the problem (hash rate) always increases, PoS selects network participants who have "frozen" the largest amount of coins, which does not require any energy consumption.
2. Beacon Chain. Merge. Test networks and merge.
Preparations for Ethereum's transition to staking began back in late 2020 when the Beacon Chain test network was launched with the goal of introducing proof of stake (PoS). Dozens of community teams worked on developing this network.
Initially, Beacon Chain existed separately from the Ethereum network. After its launch, testing, and the elimination of all possible errors, it was announced that it would be merged with the main network. The difficulty was that Ethereum was still protected by the PoW algorithm. However, technically, everything was implemented correctly by the developers, and on September 15, the merge was completed, and we saw a fully unified ecosystem in which the Beacon Chain contains all the logic for ensuring the security and synchronization of parts of the Database and coordinates stakeholders in the network.
3. What has changed? Sharding through random sampling.
So, what has fundamentally changed after the update in the distribution of transaction processing rights? To understand this, we need to familiarize ourselves with the concept of sharding.
Sharding is the process of horizontally partitioning a database to distribute the load.
The simplest version of sharding to understand is sharding through random sampling. Random sampling partitioning has weaker trust properties than the segmentation forms that are built into the Ethereum ecosystem, but it will be sufficient to understand this.
The main idea is as follows. Suppose you have a PoS chain with a large number (e.g., 10,000) of validators, and you have a large number (e.g., 100) of blocks that need to be verified. No single computer has enough power to verify all of these blocks before the next set of blocks appears.
Therefore, we randomly divide the verification work. We shuffle the list of validators and assign the first 100 validators in the shuffled list to verify the first block, the second 100 validators to verify the second block, and so on. The randomly selected group of validators is called a committee.
When a validator checks a block, they publish a signature attesting to the fact that they did so. Instead of verifying 100 whole blocks, all others now verify only 10,000 signatures - a much smaller amount of work. Instead of each block being broadcasted through the same P2P network, each block is broadcasted to a different subnet, and nodes only need to join the subnets corresponding to the blocks they are responsible for (or interested in for other reasons).
It is certain that the network has become faster. Its throughput has increased, and therefore Ethereum has become more scalable.
4. What are the prospects for Ethereum now?
The Ethereum update has affected the global cryptocurrency market. Vitalik Buterin's blockchain and team have long been one of the most popular incubators for a new generation of applications. A wide variety of software is created based on Ethereum, and a series of articles will not be enough to describe its entire range of applications.
After the update, we have a completely new asset. More flexible and profitable, safer for users, more convenient and native for developers, as well as more open and understandable for regulators.
The successful implementation of Merge has cemented ETH's status as the world's second-largest cryptocurrency. And many experts believe that Bitcoin's dominance will come to an end within five years.
No matter how much the traditional finance sector opposes the advancement of cryptocurrencies, they will inevitably take a dominant position in the future. And constantly evolving Ethereum is one of the pillars of this industry."
The Ethereum network has many promising prospects. The recent update has had a significant impact on the global cryptocurrency market. The blockchain created by Vitalik Buterin and his team has become one of the most popular incubators for a new generation of applications. A wide variety of software is created based on Ethereum, and it would take a series of articles to describe its entire range of applications.
After the update, the Ethereum network has become more flexible, profitable, and safer for users. It is also more convenient and native for developers, and more open and understandable for regulators.
The successful implementation of Merge has solidified ETH's position as the world's second-largest cryptocurrency. Many experts believe that Bitcoin's dominance will come to an end within five years.
Despite opposition from the traditional finance sector, cryptocurrencies will inevitably take a dominant position in the future. The constantly evolving Ethereum network is one of the pillars of this industry.