Ethereum’s new transition seeks to make the network much more energy efficient without sacrificing its security, allowing for greater scalability in the future.
On September 15, Ethereum is expected to move its consensus algorithm from Proof-of-Work (PoW) to Proof-of-Stake (PoS). Many consider this change the most important event in the history of the network. But what are the reasons behind its execution? And what risks would it entail?
In the Proof-of-Work model, the network is secured by miners who secure the network through the work of expensive equipment that consumes high levels of electricity to perform complex mathematical calculations. Whoever manages to validate a block receives new coins as a reward along with the transaction fees.
In contrast, in the Proof-of-Stake model, the network is secured by validators who lock up their ETH (they stake ETH) in exchange for the right to validate blocks and earn fees—without generating new coins. This new model is considered more ecological because it does not consume much energy.
Therefore, the new Ethereum transition seeks to make the network much more energy efficient without sacrificing its security, allowing for greater scalability in the future.
Ethereum Fusion Planned Before Network Launch
Consensus change is not a new topic for Ethereum. Its developers have worked on the idea even before the launch of the mainnet. Now that their efforts are coming to fruition, the event was divided into two stages for Ethereum to change its Consensus Mechanism… But why?
The first step was the launch of Beacon Chain in December 2020. This network runs under the PoS algorithm alongside the PoW mainnet and was intended to become the backbone that would support the new system when Proof-of- Work.
The main goal of Beacon Chain was to give the network enough time to get the most ETH staked, making the network as secure as possible during the Merger.
The second step is the Merge itself—the event known in English as “The Merge.” When this occurs, the PoW or PoS transition will take place, merging the Beacon Chain’s PoS consensus layer with the PoW chain’s Ethereum Virtual Machine (EVM).
What Motivated the Consensus Change from PoW to PoS?
As mentioned above, the main objective of the consensus change to PoS is energy reduction: it is speculated that this model will reduce energy consumption by 99.95%.
With this, Ethereum would overshadow a good part of the negative arguments that exist around cryptocurrencies as an unfriendly technology to the environment. In fact, Ethereum would now become a technology compatible with ESG standards (which are very fashionable today).
This more earth-friendly image will likely be more appealing to NFT artists and the gaming community that has been very vocal about the energy consumption involved in crafting the non-fungible tokens used in video games.
Similarly, it could help Ethereum comply with certain environmental regulations that may be positive in the eyes of regulators.
Another interesting point that motivated the change is the increase in decentralization, since thanks to this new consensus, Ethereum users can become validators from the comfort of their homes without the need for expensive equipment, being able to make the network more resistant to attacks.
Despite the potential risks that the Ethereum update poses, a highly optimistic scenario if all goes well, places the price of ETH close to 4,500 dollars before the end of 2022, as predicted by the majority of experts interviewed by the news outlet Next Advisor in association with Time.
By Audy Castaneda
