Web3: Ethereum’s merge shows crypto can change its spots
Ethereum’s shift to ‘proof of stake’ heralds a new chapter in the crypto saga as well as demonstrates impressive execution of open source software development.
Does the Ethereum merge express a new tone of voice for the crypto community?
Crypto has long needed a culture shift away from the periodic speculative bubbles and subsequent rapid falls - known as ‘winters’ - that turn off vast swathes of people from taking it seriously.
Now, its second largest network Ethereum has this week undergone a major upgrade and smooth transition from ‘proof of work’ to ‘proof of stake’ on the Ethereum blockchain.
The move, which is explained in-depth in an article here, not only represents a technical challenge but also shows crypto is changing.
The ‘merge’ answers some of the most common and valid criticisms of crypto - environmental impact - by creating a vast improvement in efficiency and energy usage, at least so say adherents.
It also demonstrates that the crypto industry can move rapidly and successfully to solve problems. That is something of a sea change.
Ethereum’s shift to proof of stake which brings together the two parallel networks that have now ‘merged’ via the collaboration of a genuinely decentralised, open source developer community is impressive.
Enthusiasts for the crypto world are not typically well known for their appreciation of nuance. Rampant tribalism is all too common among many adherents of the notion that digital assets from Bitcoin to NFTs are the future of everything and any deviation away from that is purely ignorant.
This culture, epitomised by ‘crypto maximalism’ is half of the reason for the frenzied speculation seen in recent years that resulted in many a first-time investors losing their shirt.
As Benjamin Dean, Director of Digital Assets at WisdomTree, notes the Ethereum network has been operating two blockchains since April 2022.
“The original blockchain, using a proof of work consensus mechanism, and the ‘beacon’ chain, which implements proof of stake. This means that people have been able to stake their ether for some time now,” he said.
However, they have not been able to 'unstake' their ether until now. This means a new era for how new ether will be distributed and how yields will be generated.
The Ethereum merge, Dean says is also in effect an update of its underlying code that has already been running in a non-test environment.
“There have been many rounds of testing on the protocol layer – so the risk of critical vulnerabilities in that code base are present but of lesser concern,” he said.
“The main risk to pay attention to is compatibility problems with the many decentralised applications (dApps) already running on and reliant on the Ethereum network. This ecosystem includes the multi-billion USD equivalent ‘DeFi’ and NFT (non-fungible tokens) segments,” he added.
What exactly the Ethereum merge will mean for next leg of the crypto story remains to be seen as its consequences for the “use case layers” such as the thousands of Web3 projects that run on Etherum become clear. Nonetheless, it does show crypto’s decentralised community can work together to solves its biggest challenges.