By Brian Buchanan, co-founder of Cap3 Collective
The long-awaited Ethereum Merge finally happened. In terms of scalability, think of it like the move from dial-up to broadband internet – it’s a significant step.
From a technical standpoint, the merge consisted of the Ethereum network transitioning from what’s known as a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) model. To oversimplify it massively, the way in which all the computers that run Ethereum talk to each other just got a lot more efficient.
The Merge was by all accounts successful.
This is all well and good, but let’s answer a useful question: how will Ethereum’s update further scale the adoption of blockchain technology?
To do this, first we need to dive deeper into the technical side of things. The fundamental difference between PoW and PoS has to do with the way the individual computers that run the Ethereum network – known as “nodes” – participate in the process of gathering and sharing data with each other. PoW (the old way, and the way Bitcoin will always run) requires miners to purchase expensive rigs and expend tremendous amounts of energy to run the network. They compete with each other to mine blocks as quickly as possible, and the node that completes the task first is rewarded with cryptocurrency for their trouble. The problem with this model is that it creates an arms race to build the most powerful (and energy consuming) mining rig to be the fastest, and every node that didn’t successfully mine the block wasted 100% of their energy output.
In the PoS model there are no more miners, only what are known as “validators.” Instead of running a behemoth rig to mine blocks, validators stake (hence proof of stake) funds for the opportunity to be randomly selected by the network to process a block in exchange for a financial reward. The more funds one stakes, the higher the chances they have of receiving the block. This new method makes it a lot easier for more people to participate in running the network by removing costly mining overheads.
The transition to PoS will do a number of good things:
- Reduce the energy consumption of the Ethereum network by 99.95%
- Increase Ethereum’s processing power from 20 transactions per second to anywhere between 20,000–100,000 transactions per second
- Lower the barrier to entry for new users who want to run a node and offer more people the opportunity to generate passive income
- Increase the decentralization of the network by adding more nodes, which is essential for security
In short, the new PoS model will be more efficient, environmentally friendly, and attractive to new users. That’s why it’s a big deal for mass adoption.
The Merge is an important advancement, but it’s just one piece of the much bigger puzzle that is scalability. There are a number of other scaling methods known as “Layer 2” solutions that are pushing the limits on how Ethereum can be utilized as a host network for gaming, decentralized finance, rewards programs, and other applications. Rollups, sidechains, and plasma chains are just a few Layer 2 solutions that are currently being utilized. There are pros and cons with each, but they all generally offer some combination of cheaper and faster transaction fees for users.
Ethereum’s development team sees Layer 2 solutions as the most effective way to ultimately scale the network and build experiences that attract new users. If the Merge was the move from dial-up to broadband, Layer 2 solutions are the advent of social media and mobile applications. It’s what developers can do with a post-Merge Ethereum network that will truly scale adoption.
Starbucks recently announced an NFT rewards program on the Polygon network, a leading plasma chain. The most popular play-to-earn game in the world, Axie Infinity, runs on a sidechain called Ronin. The Merge and subsequent network updates will continue to make it easier and less costly for bigger and better projects to launch on Ethereum.
This is an important moment, whether people realize it or not. There’s a viral clip of Bill Gates on “The Late Show with David Letterman” in 1995 explaining that computers could now stream the live audio of baseball games, to which Letterman replies “does radio ring a bell?” People in the know understood the long-term potential of what that technology could do, even if it was less efficient than AM radio at the time. Who could have seen streaming platforms coming back then? One can only imagine what kind of new solutions will be developed on the blockchain in the next 25 years.
Just as work went digital once the internet could handle the bandwidth and smartphone ownership grew as more applications were developed, blockchain adoption will follow a similar path. Advancements in fundamental technology will enable more innovation, which will lead to the creation of products and solutions that onboard new users.
The most promising blockchain network in the world is officially more efficient, so let the building of the new internet begin.
Brian Buchanan is the co-founder of Cap3 Collective, the Original DAOFund™. Cap3 Collective is a DAO that selects, funds and profits with new Web3 projects – without taking equity.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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