Ethereum has successfully completed its highly anticipated shift from proof-of-work (PoW) into proof-of-stake (PoS) in a process known as the Merge.
The plan was years in the making and has undergone a seemingly endless series of tests and tinkering. It finally happened after being one of the most anticipated and talked-about events in the crypto world this year. But now the event has passed, with Ethereum appearing to clear the technical hurdles presented by the transition.
“Ethereum has a chance now to be a productive, aligned, forward-looking technology compared to one that was rooted in high energy consumption and below par from a transaction or cost perspective,” Sean Ford, interim CEO of blockchain Algorand (which is also PoS), said to TechCrunch. “I’m optimistic about the industry’s chances.”
Although the Merge was a huge feat, there are plenty more upgrades planned for the Ethereum blockchain down the road. In July, Vitalik Buterin, co-founder of Ethereum, said the network will undergo further updates that rhyme with the Merge — Surge, Verge, Purge and Splurge.
“One of the beauties of the Merge that we see is Ethereum has a long technical road map, but it’ll never be complete,” Steven Goldfeder, co-founder and CEO of Offchain Labs (the developer of layer-2 rollup Arbitrum), said to TechCrunch. “There’s never a point where we’re done. The technology will only get better over time. We will continue to innovate and do better things.”
But what does this all really mean for the next era of the Ethereum network?
Moving forward
Since Ethereum is more energy-efficient now, it has the potential to move forward and work on improving gas fees, scalability and transactions per second, Ford said. “Given that they have a broader developer community, one would hope that two things would happen: The developer community becomes more familiar with proof-of-stake capabilities and it starts to unify around — and draw in — new developers more rapidly to the proof-of-stake world.”
The next upgrade to follow the Merge is the Surge, which aims to improve Ethereum’s throughput ability through sharding, which is a layer-1 scaling solution that Buterin said could potentially make Ethereum’s transaction-per-second rate 100 times faster, allowing for higher network throughput.
Sharding could help solve “fundamental needs for [layer-2 (L2) blockchains]; they process things faster, and over time, transactions will be significantly cheaper,” Eric Chen, CEO and co-founder of Injective Labs, said to TechCrunch. “It’s less of a technical advantage and more of a demand and need for L2s overtime.”
With sharding, gas costs may be lower and have higher throughput, but that won’t be clarified for at least a few years due to the infrastructure still being underdeveloped, Chen said. “We don’t know what will be the eventual architecture.”
“ETH is going to innovate on layer-1 to make layer-2 blockchains better,” Goldfeder said. “The move to rollups is going to be accelerated with the next steps of Ethereum’s road map.”
Rollups settle transaction executions off the Ethereum blockchain and send the transaction data back to the Ethereum network for it to be posted. Moving transactions to a layer-2 solution using rollups helps lower fees and reduces the load on the layer-1 Ethereum network so it can scale further.
There are other advantages. Ultimately, transaction data will become cheaper for Ethereum, Goldfeder said. “Today, rollups have not taken over, but over time, we’ll see a lot of shifting to rollups.”
By shifting to rollups, Ethereum transactions can be significantly cheaper without sacrificing the security of the blockchain, Goldfeder noted. Gas fees on Ethereum can range from a few dollars to hundreds for a single transaction, while on layer-2 rollups, the fees typically range from less than a penny to about 50 cents, according to L2 Fees tracker.
But what is the thing to look forward to most? Reaching a mainstream audience, Chen said, a change that could be partially unlocked by both the Merge and future upgrades to the Ethereum blockchain’s core technology.
“Ethereum is a great environment for digital collectibles, decentralized finance, asset custody or storage, and for general tokenization of assets,” Chen said. “So, I think it’s going to grow horizontally, really encroach upon the traditional counterparts and overtake and scale it to a higher value and addressable market.”
As a result of this, the Merge is going to be accessible to everyday users in a much more cost-efficient way across a scalable market, Chen noted.
Ethereum’s network transition to PoS lowers its carbon footprint by 99.99%, according to a report by Crypto Carbon Ratings Institute. While that is good for the environment, not everyone in the crypto community is happy with the shift.
The upgrade has raised some potential concerns from Ethereum users in fear that staking could make the network more centralized, going against the general ethos surrounding decentralization. As it stands, four major crypto entities control over half of all the staked ETH: Lido, Coinbase, Kraken and Binance.
The shift also will set up a number of startups like liquid staking pool providers to be successful, leaving mining pools (which are PoW) as a thing of the past.
“The theme is: We will continue to improve the protocol in any way that makes sense,” Goldfeder said. “For some people, Ethereum’s timeline is too slow, but I think it’s responsible. They’re striking the right balance. So I think we’ll continue to get to better places, but there’s always more we can do to get better.”