After more than seven years of preparation, accompanied by updates, failures and successes, the crypto space was overwhelmed with excitement last week on Thursday when Ethereum successfully implemented one of the most anticipated and ambitious updates in the crypto community. The merger, which combined the Beacon chain Ethereum with the main network using the Proof of Stake consensus mechanism to verify transactions, transferred the Ethereum network from the Proof of Work algorithm to Proof of Stake. The event became very significant in the community and attracted the attention of many people.
To understand the motivation behind the transition of Ethereum to PoS, first it is worth considering a brief idea of the design and operation of the PoW consensus mechanism.
- A Brief History of Ethereum
- Why Ethereum is switching to Proof of Stake?
- The reaction of the crypto community to the update
- Consequences of Ethereum's transition to PoS
A Brief History of Ethereum
Blockchain technologies create decentralized that eliminate the need for centralized, individual, or company control. Rather than place the power of decision making in a single individual of enterprise, blockchain achieves control through a multiple node (Nodes computer systems that run the blockchain protocol software and archives the history of transactions) mechanism in a peer-to-peer interaction. To reach a decision, the entire interacting systems must reach a unanimous or common consensus which means a collective agreement to proceed. Blockchains achieve decision-making through a consensus mechanism which is often built into the architecture of the network.
The Ethereum network debuted in 2015 as a Proof-of-Work mechanism like the Bitcoin. The PoW consensus mechanism depends on the energy-intensive computational power of network users to authenticate interactions on the network, mainly to add new transaction blocks and verify transactions. Users who contribute their computational energy to validate transactions and create new blocks are called miners and rewarded with ETH for their computational capabilities in securing the network.
Why Ethereum is switching to Proof of Stake?
Seven years later, Ethereum has shown growth. With the second largest market cap and most vibrant DeFi and NFT ecosystems resulting in over 1.15 million transactions per day (peaked at 1.717 million in May 2021) and a very low Transaction Per Second at 15 TPS, the network demands increasingly massive computational power for transaction authentication and to keep up with the continued expansion of its ecosystem. Thus, Ethereum's need for energy resulting from the use of the PoW consensus mechanism makes the network one of the most environmentally unfavorable blockchains.
A single Ethereum transaction consumes more than 200 kWh of electricity per transaction compared to 30 kWh per day consumed by a typical US household. Besides its vast energy consumption, there is frequent congestion resulting in competitive gas fees caused by the exponential growth of the network compared to its arithmetic increase in computational power. This makes the PoW consensus mechanism energy inefficient and difficult to scale.
24.03.2023