Why The Merge did not solve the problem of scaling Ethereum
The largest update in Ethereum – The Merge – took place on September 15, 2022. After seven years of hard work of developers, the second in capitalization of cryptocurrency switched to the consensus algorithm Proof-Of-Stake.
Many users were looking forward to upgrading, believing that with a topical scaling problem would be over again and for all. However, everything turned out to be different: the speed and cost of transactions remained almost at the same level.
FORKLOG figured out the features and significance of the recent update, dispelled popular myths and outlined the future plans of developers to improve the project.
- The Merge reduced the inflation and energy consumption of Ethereum by more than 90%, laying the foundation for future large -scale upgrades.
- The possibility of withdrawing ETH from stakeing will open after the Shanghai upgrade, after 6-12 months. Market participants will not be able to unlock all coins overnight.
- The Ethereum network will become truly productive after the introduction of a cartoon, Verkla trees and a number of optimizations in the framework of the upcoming stages-Surge, Verge, Purge and Splurge.
The Merge 101
The Merge was a merger level of execution Ethereum (the main network that has worked since its launch on July 30, 2015) with a new The level of consensus – Beacon chain. The update removed the need for energy -intensive mining. The security of the network is now ensured by steaking eth.
“It was a truly exciting step in realizing the vision of Ethereum – BaboutLeshi scalability, safety and stability, ”the developers of the non -profit organization Ethereum Foundation noted.
Thanks to the rejection of Proof-off -work, the power supply of the network has decreased by ~ 99.95%, according to the Ethereum portal.Org.
From December 1, 2020, Beacon Chain worked parallel to the main network. Economic activity took place mainly in the Mainte on the basis of Proof-OF-WORK. It performed smart contracts, stored data on accounts, balance sheets and blockchain condition.
So that users better understand the processes of merging and abandoning the old algorithm, participants in the non -profit organization proposed the following comparison:
“Imagine that Ethereum is a spaceship that has already been launched, but is not yet ready for an interstellar journey. The community created Beacon Chain, which is a new engine and a fortified case. After thorough tests, the time has come for a hot replacement of the old engine with a new one, right in flight. “.
Initially, the new network did not process Mainnet transactions. Beacon Chain reached a consensus in the context of its own state with the participation of validators with their funds on balance. After intensive and long tests, the network “ripened” to work with real data, including transactions of the level of execution, etc. D.
“The Merge was an official transition to the use of Beacon Chain as a tool for the production of blocks,” said Ethereum Foundation.
Miners were replaced by validators, which now process transactions and offer blocks. During the merger, all past data have been preserved.
The Merge significantly affected The dynamics of emissions the second in capitalization of cryptocurrency, which depends on the two main processes: release and burning.
The release of coins means creating a new cryptocurrency. Combustion – destruction or withdrawal from the appeal of previously issued assets.
The pace of emission and combustion of coins are determined by the dynamics of onchain activity, and the balance between these processes makes the cryptocurrency Ethereum inflationary or deflation.
According to the observations of Ethereum Foundation analysts, before the merger, the total daily reward of miners was ~ 13,000 ETH, and the corresponding validator indicator was ~ 1600 ETH. The inflation rate was at 4.62%.
After The Merge, miners dropped out of participation in consensus, stopping receiving income. With the remaining ~ 1600 ETH per day, the issue of new coins decreased by ~ 90%. Inflation has become close to 0 (more precisely – 0.24% at the time of writing).
Validators are responsible for data storage, processing of transactions and adding blocks to blockchain. Their rewards (or fines) are calculated and distributed each era for a lasting 6.4 minutes.
The awards of the validators will continue to accumulate on their balance sheets to the Shanghai hardforte, which is planned in the future. After this upgrade, the accounts on accounts will be available for the withdrawal.
“This means that the new ETH emission is isolated from the market to the update,” representatives of Ethereum Foundation explained.
However, according to them, all stakers will not be able to withdraw funds overnight.
“To ensure stable work Ethereum, the number of validators, simultaneously withdrawing coins, is limited. Only six of them can come out within the framework of the era, ”the developers emphasized.
ETH burning is the opposite release of cryptocurrency. This mechanism was introduced during the London hardford.
To perform a transaction on the Ethereum network, the user needs to pay the minimum commission (Base Fee). The fees are then burned, withdrawing ether from the circulation and thus reducing the market proposal of cryptocurrency.
The system can fine validators for offline or violations that threaten the security of the network. Such fines lead to a decrease in ETH volume on the balance of market participants, also reducing the offer of the asset.
“In addition, The Merge has prepared the ground for further scale improvements that are impossible with the Proof-OF-WORK algorithm. Ethereum has become one step closer to achieving a full scaling, security and stability, ”said Ethereum Foundation.
Some market participants are convinced that The Merge was supposed to reduce transaction commissions, but this could not be done.
According to representatives of Ethereum Foundation, a recent update was intended to change the consensus mechanism, but not to reduce gas users costs.
“Commission depends on transactional demand and network throughput. The Merge rejected Proof-off -work in favor of the Proof-OF-Stake consensus algorithm, but did not significantly change any parameters that directly affect the performance of the network, ”the developers explained.
They emphasized that the Ethereum roadmap is focused on the solutions of the second-level scaling with an emphasis on Rollups, and the transition to Proof-OF-Stake (POS) is the most important step to its implementation.
Many also expected that The Merge will significantly accelerate transactions in Ethereum.
“Despite the minor changes, the speed of transactions at the first level is about the same as before the merger,” the developers emphasized.
Historically, on Proof-OF-Work, new blocks were produced approximately every 13.3 seconds. Based on Proof-OF-Stake, time slides appear at an interval of 12 seconds, providing validators with the opportunity to publish a block.
FORKLOG turned to 1inch Network co -founder to Anton Bukov with the question of what is more relevant and effective for increasing Ethereum performance – Charding or Rollups. He answered the following:
“Each of these solutions scales ether in its own way, but does not solve the problem of the scaling of Defi, which in its current form is not suitable for the non-champion environment of execution”.
According to him, Rollups is now more relevant, “because before the cartoons are still years”.
“But at the same time, the hearts in their current concept are unlikely to compete with the throughput with rolls. I would not say that the concept of cartoon of the Ethereum is finalized. Therefore, it is not very correct to compare so far, ”added 1inch Network co -founder.
Then it will follow The Verge, where the trees of the verdrass will be represented. As Buterin explained, they perform a function similar to the trees – aggregate all transactions in the block and produce evidence in the context of the entire set of data for the user who wants to check their authenticity.
“The key property of Verpra trees is that they are much more effective regarding the amount of evidence,” said Ethereum founder.
According to him, a decrease in the volume of information will be sufficient “to ensure the viability of Stateless clients”.
In general, the step is aimed at optimizing data storage and size.
“Ultimately, this helps Ethereum to become more scalable,” the crypto -investor and analyst Miles Doycher emphasized.
The Purge designed to reduce the amount of data necessary for the validator for storage. This approach will reduce the requirements for the “iron” of the network participants and increase the overall efficiency of the system.
This step is also designed to minimize the network overload, making it more productive. According to Buterin, by the end of the Ethereum stage, 100,000 transactions per second will be able to process 100,000.
The next phase – The Splurge – It is a series of small updates that should ensure uninterrupted operation of the network after previous steps and simplify the use of the system. This stage will marked the completion of a long and thorny path to the scaling of Ethereum.
Opinions of community participants
Cardano founder Charles Hoskinson expressed the conviction that the Ethereum transition to Proof-OF-Stake did not affect either the performance of the blockchain, or the operational costs, or the liquidity.
“ETH 2.0 requires at least [hardcore] Shanghai in 2023 […]. My forecast has not changed. You understand that nothing has changed?”, – he said.
Anton Bukov has a different opinion. According to him, ordinary users have already felt the effect of Ethereum updates.
“Blocks appear exactly every 12 seconds, which provides a slightly more predictable transaction time entering the block. Well, the blocks of the network has increased the capacity of the network from 13.5 seconds to 12 seconds, ”said 1inch Network co -founder.
Hoskinson after some time completely quarreled with the developers because of The Merge. He stated that the Ethereum transition to POS turned out to be belated.
In his opinion, on the network of the second cryptocurrency capitalization, Snow White was to implement, which was one of the first to ensure comprehensive formal evidence of the safety of POS algorithms. Hoskinson also accused Ethereum of ignoring the collapse of the Cardano Blockchain variation based on Proof-Of-Stake-over the past five years.
Chainalysis analysts suggested that the price of Ethereum can show the dynamics independent of other digital assets after The Merge. In their opinion, Stayking will make the second in capitalization cryptocurrency similar to bonds or exchange products.
Experts predicted the active growth of interest from institutional investors due to the high expected profitability of ETH in comparison with traditional financial instruments like bonds.
According to Chainalysis, the number of Ethereum institutional investors (with more than $ 1 million in the equivalent of ETH) is “growing steadily” – from less than 200 in January 2021 to ~ 1100 by August of this year.
“Shanghai update (6-12 months after The Merge) […] will allow the asset, which will provide greater liquidity for the players and make the staying more attractive,” the report said.
Experts mentioned the rejection of non -ecological mining with a decrease in energy consumption by more than 99%. In their opinion, this will increase the comfort of compliance with investors ESG standards.
Mike Brun, who heads the campaign against Climate Change the Code/Not the Climate, noted in a conversation with Time:
“Ethereum showed that you can switch to an energy -efficient protocol, which involves much less pollution of climate, air and water”.
Consensys founder Joseph Lyubin said that he had negotiated with several “large financial institutions”. According to them, the institutions were waiting “Cryptocurrency for The Merge to “take a significant part” in Ethereum.
Lyubin is sure that the developers will ultimately be able to realize all the stages of the roadmap, having achieved significant success in scaling the second cryptocurrency capitalization.
“To achieve this, it will take a considerable time. However, this will lead us to architecture with almost unlimited throughput, ”he emphasized.
However, some bitcoin maximalists criticize Ethereum and other coins on Proof-OF-Stake.
The fact that you can vote onatic to change Its Properties is proof that it’s a security.
“Dear supporters POS. The fact that you can vote for anything that can change the properties of [system] is evidence that this is a security, ”wrote the marketer of the Swanbitcoin project Nick Peyton.
Vitalik Buterin called this attack “outright”. According to him, Proof-Of-Stake does not imply voting for the protocol parameters, as well as Proof-OF -work.
Often POS is also criticized for allegedly “insufficient decentralization”. For example, a long-standing supporter of Bitcoin Jimmy Song once said that the Proof-OF-Stake mechanism is not able to solve the task of Byzantine generals.
In response, Hoskinson wrote that the level of stupidity of such a statement cannot be explained.
The LEVEL of Stupid Here Is Beond Explanation Https: // T.CO/2Argkcpbg
– Charles Hoskinson (@iohk_Charles) July 4, 2022
In contrast to critics, the Defi-researcher Vivek Raman emphasized that POS will provide Ethereum as a number of properties that will allow him to shake the dominance of bitcoin in crypto space.
He called The Merge one of the most impressive developments in the history of blockchain.
Anton Bukov made the likelihood of the so -called The Flippening in 80% by 2025.
“Bitcoin is undoubtedly the first and fundamental technology of the distributed register, but the air can be called the next generation of blockchain without exaggeration,” the developer shared his thoughts.
According to him, Ethereum entered the leaders in innovation and intends to “become a third -generation blockchain”.
However, not everything is so smooth – there are a variety of risks, including regulatory. Recently, the SEC head Gary Gensler made recognition of cryptocurrencies on POS securities.
“In 2022, for the first time, a real, not an illusory danger of transaction censorship and blocks arose. That Proof-OF -work-, that Proof-OF-STAKE-Consesses do not have special technical means of protecting against censorship, ”Bukov noted.
According to him, many developers thought about this issue. Perhaps, after 1-2 years, an “elegant technical solution of this problem” will appear “.
Some community members are convinced that Ethereum cannot be called truly decentralized against the background of the obvious dominance of Lido and Coinbase in the field of liquid stake.
According to Anton Bukov, decentralization can be understood differently:
“Depends on what most like in decentralization. If we are talking about censorship resistance, then Dankharding partially solves this problem “.
The developer emphasized that if the service of liquid stakeing will abuse users’ trust, they can quickly lose a significant part of their liquidity.
MEV is increasingly gaining popularity – a way to obtain additional profit by miners or validators by changing the transaction order before approving a new block on the network.
The developer Elias Simmos, who studied the first 24,500 blocks after The Merge, came to the conclusion that 18% of them were mined using a modified mechanism called MEV-BOOST.
To the question of whether the income of the validators from MEV will continue to grow against the background of the growth of the popularity of MEV-BOOST, Bukov replied:
“In short -term – yes, there are more and more solutions in long -term on how to resist MEV. I expect that for 5 years this problem will be almost completely solved “.
The Merge not only made Ethereum cryptocurrency and practically eliminated inflation, but also laid the foundation for future large -scale updates.
Sharding, although it remains relevant, the main attention of the developers is focused on Rollups and other technically complex solutions. It will take considerable time for the full scaling of the second in capitalization of cryptocurrency.
There are a variety of risks, including regulatory. For example, the SEC head is firmly convinced that the industry needs a “police officer on duty”, and POS cryptocurrencies have securities.
It is unlikely that the path to the implementation of the developers conceived will be easy. The community should be patient and prepare for future ups and falls of the price of ether. It is also important to remember that the bear market usually abounds with significant developments and is generally useful for the industry.
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