Ethereum is revolutionizing the world of cryptocurrency. This will reduce energy consumption

In August, the Ethereum network switched from evidence to proof-of-stake; The change is known as a merger, and its first public trial will take place on June 8. Mads Eberhardt, a cryptocurrency market analyst at Saxo Bank, believes the merger could be one of the most important events in the history of cryptocurrency, as it will affect the Ethereum network both technically and economically.

  • The transition of the Ethereum network from evidence-based work to so-called “connections” to proof-of-stack is fast approaching.
  • According to Mads Eberhardt, the proof-of-stake protocol can be argued to be more cost-effective for ethereum owners than business proof.
  • Analysts warn that although cryptocurrency developers have been working on the merger for years, it could fail or be delayed.

Mads Eberhardt, a cryptocurrency market analyst at Saxo Bank, says that after the publication of the first white paper on ethereum cryptocurrency in 2014, the network’s developers made it clear that they would eventually use the proof-of-stack protocol instead. work proof, but due to technical difficulties, this has not been possible so far.

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However, the transition of the cryptocurrency from proof-of-work, now known as “merger”, to “proof-of-work” is rapidly approaching, and the first public merger test will take place on June 8. seven other small tests.

– The existing ropsten test network will connect on the same day. Mads Eberhardt says that if the connection to the ropsten network is successful, the Ethereum network will connect the other two test networks that existed before the actual connection.

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According to him, given the news and information from the Ethereum Foundation, there are indications that the merger will take place in August, provided that the tests are successful. Thus, Saxo Bank’s analyst is discussing how the merger will technically and economically change the network.

Changing the method of checking the operation

The most important change will be the transition from the proof-of-work protocol to the proof-of-stack protocol, which will fundamentally change the way the network operations are checked.

– Instead of the huge computing power given to the network by cryptocurrency miners, the owners of the ether will check the operation. This means that they will be able to block broadcasts as collateral to check transactions – in other words, to collect the broadcasts they have. In return, they will receive security fees as well as operating fees, Mads Eberhardt explains.

He also notes that for now, as part of the financial incentives for miners, the costs will be reimbursed in the form of newly released Ethers, which will then be applied directly to the congregation to review the operation.

– The main security advantage of the proof-of-stake protocol is that it remains under the strict control of stakeholders. If the network detects that the collector is acting unethically – for example, trying to reverse a transaction – the network may take some or all of the collected Ethers, says Mads Eberhardt.

The analyst notes that the introduction of the proof-of-stake protocol will reduce network power consumption by about 99.95 percent. He concludes that the differences between the consensus mechanisms need to be re-examined to understand why this is happening.

– For the Ethereum network, a new block is now completed approximately every 13 seconds. During these 13 seconds, each miner struggles to become the person who completes the block. It uses computing power and therefore requires electricity. Finally, the analyst notes that despite the fact that others spend a lot of energy on the same block, as a result, only one miner completes a block and checks operations.

– As part of the protocol, a validator is randomly selected to complete the block based on the number of stacked broadcasts. This happens before the block is created so that no other collector tries to complete the same block, resulting in a reduction in Ethereum network power consumption of about 99.95 percent. Says Mads Eberhardt.

The economic side of the “fusion” of the Ethereum network

Security costs can also be significantly reduced due to the sharp reduction in the amount of energy required to check network operations.

– According to the evidence-based protocol, the cost of securing the Ethereum network is about 5.4 million ETH per year. This means that 5.4 million new Ethers are released each year, up to about 120 million Ether supplies to encourage miners to test the operation. Mads Eberhardt says security costs during the merger will fall to about $ 0.5 million a year as compensation for collectors.

– This is a significant reduction in ethereum inflation and may even lead to deflation, as the operating costs paid are projected to exceed the cost of providing ethereum. As for operating fees, a significant part of them will be “burned” and thus removed from supply. According to an analyst at Saxo Bank, over time, this could lead to a supply shock, as the market becomes accustomed to absorbing 5.4 million newly released Ethers a year, with a sudden release of only 0.5 million Ethers.

According to Mads Eberhardt, the proof-of-stack protocol can also be argued to be more cost-effective for ethereum owners than business proof.

– With the Evidence Protocol, you can virtually verify transactions without the need for broadcasts as long as you invest heavily in processing power. This means that ETH owners are not compensated for inflation or operating fees by diluting the cryptocurrency. Mads Eberhardt says proof-of-stake owners are fairly rewarded for inflation and operating fees.

12.8 million ETH will be opened later

Mads Eberhardt notes that the merger will not be able to further expand the Ethereum network.

– If successful, it will reduce the block creation time from about 13 seconds to 12 seconds by maintaining the same block size. Finally, it will increase the efficiency of the operation by 7.5%, but not more. According to the current schedule, the scale of the Ethereum network will not improve until 2023, the analyst said.

Mads Eberhardt notes that on December 1, 2020, a proof-of-stack version of the Ethereum network, known as the Beacon Chain, was launched.

He explains that the proof of the Beacon Chain merger is the version that will actually connect to the Ethereum network.

– From the moment it starts, Beacon Chain completes the empty blocks to ensure that it works as intended. To test these blocks, ethereum owners were able to collect ethers as part of the Beacon Chain. Beacon Chain currently collects more than 10 percent. The total supply of ethers – about 12.8 million ETH – says Mads Eberhardt.

– However, these broadcasts were blocked by collecting broadcasts within the Lighthouse Chain. Initially, it was planned to unblock the funds collected during the merger, but in order to technically simplify the merger process, the developers of the Ethereum network decided not to unlock the funds collected so far. The unlock is likely to take place six months after the merger and will then cover the 12.8 million ETHs and ethers collected, Mads Eberhardt commented.

Mads Eberhardt says the merger will not affect ETH owners or require any action from them. Indicates that the connection will be transparent to ETH owners and should not affect tokens or decentralized applications currently using ethereum. This means that tokens and smart contracts on the Ethereum network will work as they did before the merger.

– Although Ethereum network developers have been working on the connection for years, the connection may fail or be delayed even more. As in all other aspects of the cryptocurrency market, there are simply no guarantees, concludes Mads Eberhardt.

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