Pre-Ethereum Merge cryptocurrency kiosks. Photographer: Angel Garcia/Bloomberg
© 2022 Bloomberg Finance LP
They came. They saw. They merged. Now that Ethereum has partnered with a new consensus mechanism and reduced its power consumption by 99.9 percent overnight, what’s next?
The transition from energy-intensive Proof of Work to Proof of Stake was the most complex part of the transition to Ethereum 2.0, the multi-part upgrade path for the smart contract blockchain launched in 2015.
However, PoS Ethereum is not the final form. There are many other features designed for the global computer network which, like any software, is never finished. Ethereum developers have a lot to improve, but getting them to agree on which features to bundle with the next update known as Shanghai is no problem.
The ability to withdraw deposited Ether, ETH deposits followed by bond validators network rules tops the list. But beyond that, nothing is set in stone. Some developers want to enhance the Ethereum Virtual Machine (EVM), the core piece of infrastructure that controls how blocks are added to the network, but they must proceed with caution. As more new features are added, more testing is required, which can push back the release date by months or years. Many Internet users are not willing to wait that long for features that have been discussed for years.
Ethereum failed to store crypto
From a technical point of view, the merger – upgrading Ethereum to proof-of-stake consensus – went smoothly and without any critical errors. One thing that his September 15 update failed to fix is the state of the markets. For all the hype, the merger couldn’t escape a 10-month economic downturn and the outlook for crypto assets remains bleak. ETH is down 20 percent over the past week.
“A price drop is almost inevitable, especially in an event as important as a merger, because the idea of buying the rumor selling the news is a self-fulfilling prophecy at this point,” says NewsCrypto.io CEO Vid Gradišar.
However, he remains optimistic and forecasts: “In the long term, there is no doubt that the net result for ETH will be better despite the lower time horizon of the price action.”
ETHW, the proof-of-work chain’s native asset that was merged into Ethereum, is faring even worse as holders sell their shared coins. bulk goods. The miner-controlled ETHPow network has lost most of its value in a week, despite the coin being listed on major exchanges.
“I believe ETHPoW was created for the immediate financial benefits it brings to its shareholders,” says KIRA founder Milana Valmont, “Look at the stock performance since the merger; ETHW has fallen by more than 85 percent. We could see a massive exodus of miners, leaving only those who have zero electricity costs as miner sustainability is directly related to the price of the associated assets.”
Scaling is a marathon, not a sprint
The merger brought no noticeable improvements for end users; For example, Ethereum’s network fees and speed remain unchanged. However, later upgrades will fix this, starting with Shanghai.
“The Ethereum Shanghai update will be another major post-merge update adding withdrawal capabilities for staked ETH as bettors are currently unable to withdraw rewards and funds from their validation balance,” explains Alex Mamoullian, blockchain analyst at DappRadar. “The Shanghai update, which is currently in the planning stages, will include changes to the EVM blockchain capabilities.”
“In July, Vitalik Buterin said that even after the Ethereum merger, only about 55 percent will be complete. So, looking at the other major development milestones in the Ethereum roadmap, the so-called “Surge” will be another important innovation to improve the scalability, speed and capacity of the network through the implementation of sharding and Layer 2 summaries .
“Ethereum’s popularity also led to its demise due to scalability issues stemming from slow PoW consensus,” says Victor Young, chief architect at Analog. “In this regard, Merge paves the way for future scaling upgrades on the Ethereum platform, including sharding capabilities.”
The concept of sharding, which allows the blockchain to process transactions in parallel for greater speed, has long been apparent in Ethereum. So far, however, most scaling improvements have been implemented on Eth-neighboring blockchains such as Polygon and Arbitrum.
“Sharding will bring greater scalability and efficiency to the Ethereum chain, which in turn will increase transaction speeds, reduce gas fees and better equip the network for new use cases,” explains AllianceBlock’s Matthijs de Vries. great because Ethereum has seen many of its creators move to other chains. Sharding could solidify a sustainable future for ETH and bring developers back to the original EVM chain.
Ethereum, as the main channel for money movement in the industry affecting billions of dollars, cannot risk inviolability. Changes must be carefully planned as a critical bug would throw the world into chaos de facto intelligent contract chain. We hope that the Shanghai Ethereum upgrade can be rolled out within the next 12 months, although empirically the development of Eth is taking longer than expected.
“I think the hardest part is behind us,” says Milana Valmont. “The merge innovation is similar to the transition of passengers between two planes in flight, it was so difficult. I believe the pre-merge delays were a testament to the efforts made to ensure optimal network stability and zero outages during the merge, and the result has paid off. Based on this, I expect future improvements as planned.”
GPU miners are headed for the Novinka pastures
As Ethereum developers tackle the slow and somewhat tedious task of scaling the network, Ethereum miners have more pressing concerns. When the merge went live a week ago, it rendered GPU miners obsolete on the Ethereum mainnet. With block rewards now being given to ETH stakers and not miners, they have been looking for other networks to connect their expensive hardware.
“Put simply, moving from Merge from Ethereum’s Proof of Work to Proof of Stake meant that crypto miners were no longer needed to secure the network,” explains Alex Mamoullian, “and as a result, instead of generating significant revenue, miners had to lose, after the September 15 transition, they attempted to reuse their GPU mining rigs on alternative PoW blockchains.”
The ETHPoW chain that was forked in the merger is the most obvious successor, but financial incentives are slim when a token is trading at 1/200th the value of ETH. It’s also unclear why anyone would want to build on ETHPoW, which is likely to degenerate into a low-hashrate, few-user ghost town.
“It boils down to one thing,” says Matthijs de Vries, CTO and founder of AllianceBlock, “Revenue. If miners are not seeing the returns they expected and predicted, they will most likely move to Ethereum Classic, Ravencoin, or other similar PoW chains. However, each migration will not only yield a fraction of the mining revenue, but will likely continue to decline due to increased competition.
Cryptocurrency networks that still use Proof-of-Work consensus, like Ethereum Classic and Ravencoin, saw a huge surge in hashrate after the merger as Ethereum miners went live. However, increased competition for block rewards has resulted in diminishing returns.
“GPU mining dead less than 24 hours after merge”, he tweeted Ben Gagnon from Bitfarms. “The only coins that make profits have no market cap or liquidity.”
However, at least one GPU miner has found an ingenious, if not sophisticated, use for its highly tuned hardware. On September 20th, the creator of the Wintermute crypto market exposed that one of his Ethereum wallets was hacked and its contents drained. The hacker exploited a vulnerability in Profanity software, which is used to create vanity Ethereum addresses starting with multiple zeros, for example. With an estimated 1,000 GPUs working around the clock, the attacker reportedly managed to crack Wintermute’s private key in about 50 days. payout? $160 million ETH and stablecoins.
The merger may be over, but life in the Ethereum ecosystem is in no danger of becoming a boring place.