These upgrades being implemented on the network have followed an array of technical & security issues. The Merge is the last phase that will merge other phases with the mainnet.
Technical issues Ether2.0 can potentially solve
As Ethereum has been adopted at a significant pace since its establishment due to the features it implemented that Bitcoin lacked, some technical concerns began to act as hurdles. The main hurdles include transaction processing speed which is continuously stopping the blockchain from scaling.
- Transaction Problem: The current Ethereum network is processing about 15 transactions every second, which is a limiting factor. This count impacts when the blockchain onboards millions of new users and launches more decentralized applications.
- Significance of Nodes: On the other hand, it is observed that nodes are really significant. Ether nodes are responsible for verifying the miner’s work and ensuring that they are following consensus rules. However, keeping a copy of the blockchain ledger helps to easily and rapidly verify the miner’s work. As the Ether ledger is approaching 1 TB of storage, it will get impractical for a regular individual to run a node.
- Security: As the scalability issue is being squared off, the other major concerns arose regarding the efficiency and security of the network. Blockchain security is one of the most vital priorities of any decentralized project and aims to always improve. Built by integrating the Proof-of-Work (PoW) algorithm similar to Bitcoin, there is a chance of the network facing a 51% attack. Although taking control of 51% of the network isn’t easy, it could be possible with the development of supercomputers.
- Heavy Energy Consumption: Furthermore, the current mining consensus requires heavy power usage to mine ETH and validate each transaction. This raises concerns about climate and high carbon footprint. Digiconomist has shared a report highlighting that the second largest cryptocurrency in terms of market cap consumes about 78.6 kWh per year.
Shift to Proof-of-Stake from Proof-of-Work
While noting the aforementioned issues that the Ethereum network has been facing over the years since its establishment, Vitalik Buterin, Ethereum’s co-founder, announced to shift to a more green mechanism. Proof-of-Work and Proof-of-Stake are the two major consensus mechanisms that digital currencies use to validate and add transactions to the immutable blockchain. PoS is much faster and considerably more energy efficient.
What is Proof-of-Work?
Proof-of-Work is the prominent algorithm that was introduced by Satoshi Nakamoto, the pseudonymous creator of Bitcoin. In this method, blockchains use heavy computational power that ultimately requires heavy power usage to race with the miners globally and win the right to add a block to the blockchain. Winners are then rewarded in terms of the network’s native cryptocurrency. Ultimately, the process helps to secure the network, and miners are motivated to race by paying high rewards.
Problem with the Proof-of-Work?
In chase of huge rewards, miners are investing in expensive computational equipment and places to store and cool them. With expensive rigs, these miners also consume massive amounts of energy to power their equipment and generate more rewards.
What is Proof-of-Stake?
Proof-of-Stake requires participants, known as validators, who validate the transactions in exchange for rewards. Unlike PoW, in this method, validators do not require expensive equipment or massive energy. Rather, the validators will be required to dedicate their own stake of digital currency to the network. Although these nodes will use marginally more energy than a laptop, it is considered that PoS tunes a 99.95% carbon footprint in comparison to PoW.
Benefits of Proof-of-Stake?
Besides energy efficiency, PoS is a much more secure option. PoW prevents illicit players by making miners expand their resources to compete against each other. Notably, we can say that PoW relies on miners to act in good faith and follow blockchain’s rules. However, 51% of attacks remain a bigger threat to this algorithm.
The Proof-of-Stake system implements a mechanism called slashing, where validators lose part of their stake if they decide to act dishonestly. In order to pull off a successful 51% attack the attacker would have to control 51% of the validators, which would require 51% of all staked ETH, which is a massive capital.
How will Ethereum shift to a PoS-based model?
The Beacon Chain is one of the essential concepts which defined the concept of Ethereum 2.0. It is responsible for coordinating the network to shift to the PoS model by randomly assigning stakeholders to validate different shards. Buterin believed that randomness was really significant as it prevented stakers from colluding and taking over a side chain.
The Beacon Chain is basically the creator of the new PoS model network that is yet running parallel to the current mainnet. Although the validators have already begun to add the new transactions on the Beacon Chain, they are unable to validate the transactions on the current mainnet.
Scalability: A matter of concern
Among Ethereum’s three major concerns, including scalability, sustainability, and security, a shift to Proof-of-Stake is solving sustainability and security concerns. However, scalability has still remained a concern. According to Buterin, splitting the main Ether blockchain into multiple chains named “shards” would make the process faster. This process is called “Sharding.”
Amid splitting, each shard would contain its independent ledger and smart contracts and remain different from both state channels and plasma. Furthermore, within a shard, a random notary is picked periodically and votes on the validity of blocks, which will later be merged on the mainnet through the Sharding Manager Contract.
How Sharding Will Solve Scalability?
Ethereum 2.0 will have 64 shard chains that will spread the network load in different side chains. Running on a single chain is causing Ether transactions to face congestion and high fees. Distributing the complete process that is on the current mainnet across 64 new chains would enhance the efficiency of the rendering processes. Shard chains will ultimately make everything faster and easier to run on the Ether node on hardware, as there will only be fewer data to store.
Enhancing the network pace will also boost network participation. For this reason, the issuance of ETH tokens will also be reduced by more than half. About 4.7 million new ETH coins are introduced on the current network yearly. However, amid The Merge, the issuance will be reduced to about only 100k to 2 million ETH coins a year. This will make the virtual currency more scarce and boost its value.
Docking – one of the most vital features of Ether2.0
With the introduction of Proof-of-Stake and Sharding, the Ethereum core developers found a way to solve the three major technical issues on the network. However, a puzzle piece was still missing: connecting the current mainnet with the upcoming PoS model.
Following the scenario, the developers introduced Docking, a feature that was the last piece of Ethereum’s entire journey of transition. With the help of Docking, the current Ethereum Mainnet will be converted to one of the shards in ETH2.0’s Proof-of-Stake model. Also, Docking will help to bring smart contracts’ abilities to the PoS model.
Moreover, Docking will also track and provide the blockchain’s full history and current state. Ultimately, Docking will allow the entire network to transition smoothly to the new, upgraded, and most efficient model.
In a Nutshell: What is Ethereum Merge?
The entire process of the blockchain transition has been split into multiple phases. These phases include PHASE 0, PHASE 1, PHASE 1.5, and PHASE 2. And here, the ultimate phase is known as The Merge.
Phase 0: The Beacon Chain was launched with the Proof-of-Stake framework in the first stage, or PHASE 0. At the time, to launch the first phase of the millennial upgrade, the blockchain required to fill a threshold with 16,384 validators. Meanwhile, the threshold was already reached in late November 2020, which allowed PHASE 0 to be launched earlier in December 2020.
PHASE 1: Although the first phase took place earlier, its effect was incomplete until PHASE 1, which introduced the Sharding Framework. Amid the full implementation of Sharding, the Beacon Chain will eventually serve as the base layer on the mainnet. However, these two features are not functional as they were waiting for the other upgrades.
PHASE 1.5: Until PHASE 1 of the transition roadmap, the legacy Ethereum and Ethereum 2.0 remained two entirely different ecosystems. Now, the issue was that the decentralized applications (dApp) on the legacy blockchain only existed on the native build. Following the scenario, PHASE 1.5 focused completely on bridging the two environments. Hence, in this phase, the independent components of the previous phases were bridged, giving the first feel of the transition.
PHASE 2: It remained one of the most important stages; The Merge. In this future upgrade, the two protocols will be merged, which is referred to as Docking. Meaning that the legacy Ethereum mainnet will be docked with the Beacon Chain and its accompanying architecture. Ultimately, this phase will make the legacy network one of the 64 shard chains, all of which will operate using the new model. Amid The Merge, the Beacon Chain will then manage and coordinate all validators available on the network.
Once ‘The Merge’ takes effect, the network will initiate cross-shard interoperability and native dApps development on the upgraded model. Ultimately, The Merge will provide shard chains the ability to manage transactions and smart contracts. It will also introduce new programming languages to code smart contracts. Solidity is the only language through which individuals are programming smart contracts. Amid The Merge, programmers and developers will be able to write smart contracts in any language.
There is also another less spoken phase, PHASE 3. It is not so essential as it is only for miscellaneous purposes, which will solve any unexpected issues. After PHASE 3, the transition to Ethereum 2.0 will finally be considered complete.
Speculations yet exist
Although Proof-of-Stake seems to be the greenest and most scalable solution, there remains a caveat. The first bigger concern is that the security of this model is not as proven as the PoW-based algorithm. Meanwhile, validators with large holdings could have excessive influence on the transactions. However, these two concerns are really a fraction of what exactly the benefits this model provides, yet many are waiting for The Merge to observe how this model will perform.
The concept sounds really gravid when it comes to Sharding, yet there are various attack vectors. The main concern is what if some illicit player takes over the majority of block producers in a single shard while infecting it to force submitting invalid transactions.
Although the core developers are yet actively working on these concerns, we need to wait a little more to witness how things will go.
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