“The Merge” as Ethereum Transitions to Proof-of-Stake

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Pocketful of Quarters

11/3/2022

Proof of Stake

As I’m sure you’ve seen, Ethereum recently completed their transition to a proof-of-stake powered blockchain network. This, the first step in a long line of planned upgrades to make Ethereum more scalable and secure, is known as the “Merge” and is to be subsequently followed by the “Surge, Verge, Purge, and Splurge”. This marks a step in the right direction for Ethereum and for all blockchain networks. We sat down with Pocketful of Quarters’ COO, Tim Tello to discuss the ins and outs of this transition and why it is such a big deal. To fully understand the significance of this transition it's necessary to take a look at where Ethereum started.

History of Ethereum

Ethereum’s devotion to dApp (decentralized application) developers shaped how the chain sets itself apart from others in the space. As Tello put it, “Ethereum really became the Rosetta Stone for dApps,” because on Ethereum, “developers were able to create their own tokens, protocols, and versions of blockchain”. Ethereum is the chain of choice for dApp developers for several reasons.

ETHEREUM REALLY BECAME THE ROSETTA STONE FOR DAPPS

-- Tim Tello, COO

The first and likely most important reason is that Ethereum’s development interface greatly reduces time needed for programming, allowing developers to quickly launch their projects. Ethereum makes monetizing your dApp relatively simple, and the large network of developers on the Ethereum platform have built tools to make it easier on other developers building on Ethereum. As the number of developers on the network continues to grow, more tools and documentation will be added to further aid new dApp builders who will join this community and make it even better for more new members. Ideally this system will go on in perpetuity. This need for growth and faster processing speeds has led Ethereum’s move away from proof-of-work, toward proof-of-stake.

Proof-of-Stake vs Proof-of-Work

Like most other blockchain networks, Ethereum was started on a proof-of-work system. This  means that blocks on the chain are built by mining. Mining requires roomfulls of computers to perform computational mathematics to prove that a series of transactions is valid. This system uses more time and resources than is necessary, however, most major networks have stuck to this proof-of-work model.

GREAT FOR THE ENVIRONMENT, BUT ALSO GREAT FOR BLOCKCHAIN AS A WHOLE

-- Tim Tello, COO

With the move to proof-of-stake, there will no longer be a need for large networks of mining computers. Proof-of-stake can provide the same authentication as proof-of-work with increased transaction speeds and less environmental waste while maintaining higher security. Tello says, “This transition is great for the environment, but also great for blockchain as a whole”. These improvements are made possible because complex mathematical equations are not required to validate transactions. Instead, people’s individual computers work as validators on nodes to be able to prove validity by staking tokens. Proof-of-stake raises transaction speeds, heightens security, and is more environmentally friendly as no time is wasted solving complex puzzles, validators are randomly chosen and cannot be predicted, and one validator is used for each transaction rather than rooms full of miners, lowering energy consumption.

The Future of Proof-of-Stake

With a transition to a more scalable, higher security system it is only a matter of time until a large number of industries make an adaptation to blockchain. Tello says one of the questions proof-of-work left unanswered is “how can blockchain handle the amount of transactions that are happening in real-time on the internet via credit card processing? Until now, it wasn’t able to”. Proof-of-stake means a blockchain moving fast enough to keep up with all of these transactions. In fact, Tello mentioned a friend of his you might recognize, Jaynti Kanani, co-founder of the Polygon Network. Polygon has expressed excitement about the achievement of unimaginable speeds because of what proof-of-stake will allow them to accomplish.

In regards to our line of work, the future of the videogame industry lies in the jump from Web2 to Web3. The issue so far has been similar to the issues faced by many other industries: there are too many blocks that need to be created too quickly for the consensus mechanism to keep up. In gaming, there are millions of actions happening every second of every day all over the world, but with the move to proof-of-stake along with new Zero Knowledge scaling solutions (ZK rollups), it is becoming more possible to validate these transactions.

Disclaimer

We are not financial advisors. The content on this website, our Social Media pages, or our YouTube videos are for educational purposes only and merely cite our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. Always remember to make smart decisions and do your own research