Ethereum’s imminent move to a proof-of-stake validation model could make the world’s second most popular cryptocurrency network less secure, at least temporarily, a DeFi expert has told Tech Monitor. Known as The Merge, the switch away from the resource-heavy proof-of-work mining model is expected to be complete by Wednesday.
The move away from proof-of-work validation by Ethereum started in December 2020 and is expected to result in a 99.95% reduction in energy consumption by the blockchain, from 112 terawatts of electricity per year to just a few megawatts. This is because proof-of-work involves nodes competing against each other to carry out calculations (mining) to mint a new block in exchange for rewards, whereas in proof-of-stake, validators are simply required to hold and stake tokens from that blockchain to validate transactions and mint new blocks.
Despite the energy savings, the switch to proof-of-stake isn’t universally supported in the Ethereum community with some expressing security concerns, including the possibility of validators being informed ahead of time about which blocks are validating, which could enable them to manipulate the price using two consecutive blocks.
Jason Soroko, CTO of public key infrastructure at security vendor Sectigo, and an expert in validation and digital security told Tech Monitor: “The extra information that proof-of-stake provides validators may reduce its security to some degree, but proof-of-stake incentivizes accurate block validation. Over time the problem of ‘two consecutive blocks’ will be solved.”
Billions of dollars have been lost to cryptocurrency scams, heists and attacks with the largest single attack seeing the loss of $614m from the Ronin Network earlier this year.
Ethereum merge marks the end of mining on the blockchain
The impact of the move to proof-of-stake is yet to be seen. The final merger will happen when the network hits a specific “total difficulty” value known as the terminal total difficulty, which is expected to happen before September 20.
Individuals and groups currently mining on the Ethereum blockchain will no longer be able to do so once the switch happens. If they do continue to mine they’ll be doing so on an incompatible version of the chain and “will be unable to send Ether tokens or operate on the post-merge Ethereum network,” Ethereum says.
The Ethereum group wrote in a blog post: “The merge represents the joining of the existing execution layer of Ethereum with its new proof-of-stake consensus layer, the Beacon Chain. It eliminates the need for energy-intensive mining and instead secures the network using staked ETH.”
Sharding will speed up Ethereum payments
As well as the energy-saving benefits, Ethereum says the move will allow it to make upgrades including the introduction of ‘sharding’, a portioning tool that splits a large set of data into smaller parts called shards which will make the blockchain more scalable and allow for faster payment processing than is currently the case.
The move of Ethereum to proof-of-stake is considered one of the most significant events in the history of cryptocurrency and will be closely watched by regulators and other networks. It even prompted Google, which is increasing its web3 investment, to create a countdown, visible when users search for “ethereum merge”.
“Ethereum serves as the basis for many cryptocurrencies, NFTs and other blockchain-related activities,” explained Soroko. “The Ethereum merge is significant because it addresses problems of scalability and energy efficiency in the proof-of-work consensus algorithm. But it should be noted that the upcoming merge is only one step in the evolution of Ethereum, albeit an important one that will enable the next set of changes that will follow.”
Bitcoin mining’s days could be numbered
The Ethereum merge has coincided with calls for Bitcoin and other popular blockchain platforms to move away from proof-of-work.
The US government recently suggested that regulators could crack down on cryptocurrency mining due to the carbon footprint it generates. A report by the White House Office of Science and Technology Policy said miners should act to reduce greenhouse gas emissions.
More data on power use from the crypto sector will be collected with energy efficiency standards being advanced to minimise the impact and promote the “use of environmentally responsible crypto-asset technologies.”
In a report on the impact of crypto mining on climate change the White House wrote: “Should these measures prove ineffective at reducing impacts, the administration should explore executive actions, and Congress might consider legislation, to limit or eliminate the use of high-energy intensity consensus mechanisms for crypto-asset mining.”
Soroko said: “Proof-of-stake is more energy efficient than proof-of-work, but cryptocurrencies such as bitcoin that utilise proof-of-work do so for reasons beyond sustainability. The argument for proof-of-work is that it enables a more decentralised participation than proof-of-stake. In proof-of-stake, those who provide the highest stake amounts most likely have the greatest influence in decisions about the cryptocurrency.
He adds: “The diversity of cryptocurrencies and consensus algorithms reflects the different needs of different types of transactions, there is no one-size-fits-all solution. Proof-of-work-based cryptocurrencies fill the need for a more pure form of decentralisation and likely won’t be going away purely on the basis of energy efficiency.”