The Merge is one of the most anticipated events in crypto history, and this is the week.
That's when the Ethereum blockchain is expected to move from a proof-of-work system of validating transactions to a more energy-efficient proof-of-stake system. Ethereum, the most-used blockchain in the crypto space for apps, smart contracts and NFTs, powers Ether, the second-largest cryptocurrency after bitcoin. Current market caps: $216 billion (Ether) and $415.8 billion (Ethereum).
Alex Van de Sande, who helped launched Ethereum, and David Shuttleworth, a DeFi economist at ConsenSys, joined Crypto DeFined on Sept. 8, 2022 to talk about how the Merge will alter life in the crypto world.
Five key takeaways (edited for clarity):
The Merge is a defining moment for Ethereum.
Alex: “We have been saying that we wanted to evolve beyond proof of work since we launched the network. We are finally at the point in which our solution, proof of stake, is good enough. Just to be able to change that on the fly… is such an incredible accomplishment.”
The transition to proof-of-stake is part of the web3 evolution.
Alex: “In the past four to five years, crypto has migrated from relative obscurity to having active naysayers. A lot of that comes from the narrative that crypto is burning the rainforest just to create a casino. With the (merge), all the major platforms in which you can build something have migrated to proof of stake, and that's very important.”
David: “A shift toward proof of stake essentially makes it super clean, super efficient, super green. It's important not only to the Ethereum ecosystem, but considering how big a role Ethereum plays throughout the entire web3 space, it's a good first step for the broader community as well.”
The Merge makes the network more decentralized — and secure.
Alex: “I believe it will lead to more democratic assets and a more decentralized future for Ethereum, mainly because it’s a lot easier to have access to Ether. Anyone with access to Ether and with access to the Internet can stake, while before, in order to mine, you needed to have access to special equipment and access to a large amount of cheap energy.”
David: “As the price of Ethereum increases, it becomes exponentially more expensive to attack the network." You can still "send incorrect data and try to mess with blocks, basically have a very rogue validator. But the problem is, others are going to detect you -- they have an incentive to detect you" and then hackers will lose their money.
The Merge isn’t a static change - and it's still going to be expensive to use.
Alex: “The fact that The Merge is happening means that we are able to go out there and just update and change and improve the protocol. That’s such a great positive signal. Our goal is to have more democratized access to Ethereum. If we need to change something else (later on down the road), the path is clear. It’s not static.“
David: “At the end of the day, ethereum is still going to be relatively expensive to use." Down the road, however, "ethereum becomes way more optimal as sharding is enabled, allowing you to handle thousands and thousands of transactions per second.”
Can The Merge fail? (Short answer: yes)
David: “There could be a coding error, or a bunch of nodes go offline and it fails in that regard. One angle a lot of folks aren’t talking about is: the code and actual implementation can go through, but then in practice, it fails. . . One of the biggest risks is censorship. If it shapes up to be large entities and corporations running the validators and securing the network … are they (acting) at the behest of the SEC or other regulatory powers that prevent them from processing transactions?”
Alex: “I do think The Merge can fail, not only in the technical sense but the Merge can also fail in the sense that our goals have not been met. It’s not easier to stake Ether, it’s not more democratic. I think we should focus on each individual problem as they come. After the merge, I think we should take a look back at what is happening in the ecosystem.”