The Ethereum revolution that everyone is waiting for

The Ethereum revolution that everyone is waiting for

For a few more days, Ethereum - the second blockchain by diffusion and value - will continue to function as that of bitcoin has historically worked. In extreme synthesis, to validate transactions and obtain a certain share of ether in exchange, the computers connected to the blockchain (which are now huge machines professionally managed by real companies) compete against each other in the attempt to be the first to solve a very complex algorithmic puzzle.

Since the more powerful the computer, the greater the chances of winning this race, over time the computing power dedicated to this process - usually known as mining, but whose technical name is proof-of-work - it has grown enormously. And with it also the necessary energy consumption.

Why change Excessive consumption is a problem that is always brought up when it comes to bitcoins, but which actually concerns several other blockchains, obviously including Ethereum. If bitcoin management consumes over 130 terawatt hours a year (TWh. More or less as much as the whole of Argentina), Ethereum still exceeds 74 TWh, about as much as Austria. Furthermore, the proof-of-work mechanism enormously limits the amount of transactions that can be managed per second (about twenty, in the case of Ethereum), causing spikes in the costs incurred by users whenever the blockchain is particularly busy. In some cases, a single transaction can cost as much as $ 50 or more, inevitably limiting the spread of this tool.

Unlike bitcoins, Ethereum is not limited to issuing a cryptocurrency (which bears the name of ether), but is a real platform that exploits the potential of the blockchain and above all of smart contracts - contracts that they automatically go into effect as soon as the agreements between the parties are fulfilled - to provide anyone with the necessary skills the opportunity to give life to their own blockchain projects.

Today there are hundreds of projects that exploit Ethereum for the most varied purposes : nft, decentralized finance (DeFi), play-to-earn video games (an industry known as GameFi) and more. However, if the blockchain aims to become a backbone infrastructure of our age, it must first resolve the aforementioned limitations.

The fusion Of all this, Vitalik Buterin (the founder of Ethereum) has shown himself to be aware since the day he presented his creation to the world in 2015. Seven years later and after such a number of postponements that many thought would never occur, around September 15, 2022, Ethereum should finally complete the process known as The Merge, officially announced in August of this year. year creating enormous expectations.

This revolution bears the technical name of proof-of-stake. In this system, the miners are replaced by "validators", who to participate no longer have to solve algorithmic puzzles, but simply deposit a sum of money (s take) as a deposit (starting from a minimum of 32 ether, at this time about 50 thousand dollars). The more money you deposit, the greater the chances of being selected among the validators, who must confirm the validity of the transaction that is taking place on the blockchain by obtaining other ether as a reward.

Anyone caught cheating the system loses some or all of the money deposited. In this way, you get rid of that monstrous competition to the sound of computing power. Other further innovations, such as sharding, aim to divide the Ethereum blockchain into 64 autonomous but connected chains, increasing transaction processing capacity (but this will not happen until 2023). As soon as The Merge kicks off, Ethereum emissions will be immediately reduced by 99%, while subsequent innovations should make this blockchain capable of completing even 100,000 transactions per second (an amount comparable to those managed by a network like Visa).

Many other blockchains today use this system, including Cardano, Avalanche, and Polkadot. But when the "merger" happens, Ethereum will be by far the largest blockchain-based network to adopt this system. If all goes well, this could therefore really be the long-awaited transformation of the blockchain: from a technology that has perennially failed to meet expectations (instead giving rise to colossal projects on the edge between very high-risk speculation and real scams), to efficient and sustainable system that could attract the attention of established realities, ambitious digital transformation projects (portability of health data via blockchain, to give a classic example) and really enable the long-awaited web3.

Opportunities and risks "This transition is essentially laying the foundations for a future that will be more scalable, much more sustainable and much more usable even by ordinary people," Citi analyst Joseph Ayoub told the New York Times. The risks, however, are significant: some serious mistake in the transition could put hundreds of projects built on Ethereum at risk, which overall manages something like 50 billion dollars in funds deposited by users. "We are not taking it lightly," Danny Ryan, an Ethereum Foundation researcher who has been working on The Merge since 2017, explained to the NYT: "There has been an immense amount of engineering work, testing and academic scrutiny. ”.

Those who will certainly not be happy with the transition are the Ethereum miners, who will have the possibility of transforming themselves into validators, but who will inevitably have to sell or convert equipment that is no longer useful today. For this reason, the price of second-hand graphics cards also used for mining is expected to continue to drop as Ethereum "miners" leave the industry.

There is another problematic aspect in this step. As already mentioned, in proof-of-stake the greater the amount of ether deposited as collateral, the greater the possibility of being selected. Although there is an opportunity to organize into "pools" (groups that share resources and earnings), this mechanism inevitably benefits those who are already endowed with great resources, further enriching the rich and risking to make a system that has been created ever more centralized. to be the opposite.

Precisely for this reason, it is very likely that some "nodes" (computers connected to the blockchain that guarantee its functioning) will refuse the passage and keep the old Ethereum network alive (such as already happened with Ethereum Classic). Nobody will be able to prevent it, since Ethereum is a decentralized reality that works on the basis of voluntary consent (without denying the extraordinary influence of the founder Buterin). But that this division - called fork in jargon - can be successful and a real raison d'etre is a different matter.

Fears that the proof-of-stake system could corrupt the ideals of the the basis of many blockchain projects are the same ones for which the bitcoin community has so far peremptorily refused to initiate such a transition. However, given the (necessarily) growing attention to the environment and energy consumption, sooner or later even the most orthodox heirs of Satoshi Nakamoto will have to deal with reality.

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