03 Apr 2022 · 7 min read

Top Narratives About Ethereum and Its Merge with Its Proof-of-Stake Beacon Chain

Source: Adobe/New Africa

 

Ethereum (ETH) has launched Kiln, the final testnet its development community will use prior to the blockchain network's long-awaited transition to a proof-of-stake (PoS) consensus mechanism. Now that Kiln has gone live, it should be more or less only a matter of time before Ethereum will complete its ‘merge’ with the PoS beacon chain, which is due in Q2 2022.

This merge -- which will see Ethereum’s original execution/settlement layer integrate with the beacon chain’s new consensus layer -- is likely to be one of the biggest events in the crypto sector in 2022. However, as exciting as it will be for the Ethereum and wider crypto communities, it won’t be without its controversies and misconceptions, while there’s also a good chance that it could reignite the ongoing rivalry between Bitcoin (BTC)/proof-of-work (PoW) and Ethereum/PoS maximalists.

Cryptonews.com has asked Ethereum developers and community members, as well as industry players outside of the Ethereum community what to expect, and what not to expect, from the transition.

The decentralization, security, and fairness debate

“I think there are a lot of misconceptions around the merge, not only from Bitcoiners. The biggest ones are probably around decentralization, security, and fairness,” said Ethereum developer Marius van der Wijden.

Indeed, in the months (not to mention years) preceding the merge, there have been plenty of disputes related to proof-of-stake. One particular contention is that PoS isn’t really decentralized, in that it simply allows the already-rich to buy up large stakes and effectively control the network, with consolidation resulting.

Of course, this isn’t a view shared by the developers and coders working on Ethereum’s particular version of PoS, which according to van der Wijden can’t simply be judged in terms of previous instances of the consensus mechanism. Indeed, for him, Ethereum’s implementation of PoS “excels” with regards to the aforementioned categories of decentralization, security, and fairness.

“We made sure that normal users with their consumer-grade hardware can both follow the chain as well as propose blocks. The capital requirement of becoming a staker is ETH 32, which is relatively low (it was ~USD 5,000 at the start of the beacon chain) and there are no huge economies of scale here,” he told Cryptonews.com. At the time of writing, ETH 32 is worth almost USD 109,000.

Responding to perceptions that a small, super-rich elite could effectively monopolize the network, van der Wijden also suggests that running 10 validators is only slightly more efficient than running one as most costs are the capital requirements. This, in his view, contrasts favorably with what you generally find with PoW cryptoassets such as Bitcoin.

“In proof-of-work, big mining companies are buying the hardware directly from the manufacturer in bulk and get way better prices than a normal user would [...] There is the argument that in PoS only ‘the rich get richer,’ but I would argue that this is even more so in PoW, as mining companies can leverage their economy of scale way better than any home miner could,” he added.

Naturally, people sitting more within the Bitcoin camp don’t agree that PoS is superior to PoW. Bitcoin educator, author, and programmer Jimmy Song is one of these, and he tells Cryptonews.com that much of the discussion surrounding Ethereum’s transition misses one very important fact.

“PoS doesn't solve the Byzantine Generals Problem. Therefore, it does not provide decentralized consensus,” he said.

That would mean that Ethereum’s merge will result in it no longer being robust against potential attacks involving bad actors. This, however, is not an account Ethereum developers agree with, with Marius van der Wijden explaining that Ethereum will introduce a number of solutions to prevent common attacks such as ‘nothing at stake’ and ‘long range attacks.’

“Nothing at Stake means that it is trivial for a validator to propose two blocks at the same blockheight. This is mitigated by slashing their stake if this is detected,” he said.

Likewise, van der Wijden says that long-range attacks are solved by creating checkpoints that are distributed via the client software. And in general, he also states that PoS allows the community to punish attackers, something that can’t be said for PoW.

“If a PoW network gets 51% attacked, there is no way to take the GPUs away from the attacker [...]  In a PoS system, the community can come to a consensus and slash the attacker without impacting the honest stakers,” he added.

Gas fees and scaling

But while van der Wijden will defend Ethereum’s PoS against claims that it isn’t really decentralized or that it’s vulnerable to exploits, he does acknowledge that some people may be expecting too much from the initial merge. This includes people within the Ethereum community itself, some of whom have an expectation that the merge will reduce gas fees, which have risen notoriously high at various points throughout the past year or so.

“​​The merge itself will only slightly increase the throughput of the chain (by moving from optimistically 13 seconds to enforced 12 second blocktimes). This is such a small change that it will not have noticeable effects on gas fees,” he said.

The developer also explains that the initial merge is only the first step in a relatively long process, and that its immediate effect won’t be to make Ethereum much more capacious and scalable. That said, greater scalability will be the ultimate, eventual endpoint for Ethereum as a proof-of-stake blockchain network.

“Scaling on Ethereum will be achieved, similar to Bitcoin, by using Layer 2 solutions such as payment channels or rollups. What PoS will enable though is sharding: it's a lot easier to build sharding on top of PoS than on PoW,” he said.

Macroeconomic narratives

For Lex Sokolin, Global Fintech Co-Head at ConsenSys, an Ethereum-focused blockchain company, the most glaring misconception surrounding the merge, and Ethereum more generally, is ETH’s macroeconomic position within the crypto market and ecosystem. Because while BTC is often characterized as the sector’s ‘store of value,’ ETH is often perceived merely as one utility token among many, and for Sokolin this is somewhat wide of the mark.

“There are now choices for decentralized computation, whether on Polygon, or rollups, or on other chains like Solana. But Ethereum happens to be the most trusted computational layer given its scale, history, and performance, as well as connectivity to scaling solutions,” he told Cryptonews.com.

For Sokolin, Ethereum’s status as the biggest smart contract-enabled blockchain network means that ETH is a valuable commodity, since it powers the usage of Ethereum. Further, as the merge happens, the inflationary incentives in the network will slow down, leading to a more "ultrasound" version of Web3 money. 

“It is the very base of storing value in the Web3 economy, which is only enhanced by the economics post Merge,” Sokolin added, implying that ETH will become, much like BTC, a kind of store of value.

The eternal Bitcoin vs. Ethereum debate

Aside from changing Ethereum and how it operates, the merge will most likely intensify the seemingly endless ‘war’ between Bitcoin and Ethereum maximalists, which is likely as old as Ethereum itself.

“I think there will be more hostility between the communities as Bitcoin supporters will have another argument for not liking Ethereum (the perceived centralization and insecurity of PoS) and Ethereum supporters might start to question the energy consumption of bitcoin. I think the two communities are already pretty split, at least the maximalist communities,” said Marius van der Wijden. 

For some commentators, the rivalry between the two networks isn’t quite as heated as it may seem, meaning that the merge will do little to change this.

“The rivalry between BTC and ETH is more theatre than substance because they play different roles in the cryptocurrency landscape. BTC is the undisputed ‘digital gold’ -- the gold-like reserve currency in crypto, whereas ETH is the currency powering the Ethereum economy,” said Boba Network founder Alan Chiu.

However, while reporting on a Bitcoin vs. Ethereum rivalry may sometimes overstate the issue, industry figures expect the merge to change the dynamic between the two networks, as well as the values of the wider crypto ecosystem and its users. 

As van der Wijden says, “I hope that the move to PoS will also result in more users that are very environmentally conscious to join Ethereum and build on it. We've seen a lot of hate, especially against NFT projects, for their perceived environmental impact.”
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Learn more: 
- Axie Infinity’s Ronin Hack Exposes Risks of Proof-of-Stake and Centralization – Analysts 
- Hayes Says He Aims to Rebalance Portfolio in Favor of Ethereum, Sets New Price Target for ETH 

- Buterin Claims Ethereum Simplicity is Still Possible, as Developers Warn of Increasing Complexity
- Ethereum Staking Sees Accelerating Growth Ahead of Merge

- The Ethereum Economy is a House of Cards
- Why Ethereum is Far From ‘Ultrasound Money’