Blockchain history will soon be written as Ethereum gets a major upgrade with ramifications for the entire crypto space. Called “Consolidation,” the upgrade is intended to change the network’s consensus mechanism into a faster, more environmentally friendly system known as proof of stake.
Ethereum will attempt to merge its Mainnet – with its ability to launch smart contracts and record the full history of the blockchain – with its Proof of stake Beacon Chain. This is unprecedented and is widely believed to be crucial to the crypto ecosystem in which Ethereum succeeds.
After facing numerous delays and failures in the process, Ethereum developers are now preoccupied with setting a firm date for the upgrade. However, they have confirmed that currently tested this procedure on several testnets before deploying on the main chain.
Ethereum is no stranger to bold innovations. The release, in 2015, created programmable blockchains that allow developers to build programs or decentralized applications (dApps) on top of the Ethereum blockchain without using centralized cloud servers. .
Ether, the token of Ethereum (ETH), has been one of the top performing assets of any class. Since its release, the Ethereum price has increased by about 12.500%. This is because the network has created value through the large number of dApps and other projects that use it – especially non-fungible tokens (NFTs), which have gained prominence in recent years. .
“The core value proposition for ether increases as the number of tokens, smart contracts, and developers choosing to interact with the Ethereum network increases,” Fidelity Digital Asset Management said in a recent report. The power of this type of network growth has been seen in the growth of social media companies like Facebook, which increase in value as their networks expand.
“Consolidation” will end Ethereum’s reliance on proof of stake technology. The most famous proof of stake “user” is Bitcoin, and environmentalists are quick to criticize the large amount of energy that proof of stake uses.
However, Bitcoin actually uses more renewable or wasted energy than any other industry. Furthermore, a proof-of-work system can be considered more equal because every mining computer has equal rights in validating transactions.
On the other hand, proof of stake creates the network by requiring validators to key their ETH in order to participate in the network. This uses much less energy than proof of stake.
To become a validator on Ethereum, you have to stake 32 ETH (currently over $34.000), which is a major barrier to entry. That leaves holders of small amounts of ETH pooling their resources through tools like Lido and Rocketpool, giving these protocols a disproportionate opportunity to influence the network.
This risk is mitigated by the fact that any improper behavior is subject to a penalty, and the right to validate transactions is randomly assigned. While proof of stake may overlook some aspects of decentralization, Ethereum co-founder Vitalik Buterin believe The new proof of stake network will be more secure and efficient.
If the “Consolidation” takes place, the next step for Ethereum will be to roll out 64 shard chains to ease network congestion. Think of it as surface area. The shards will increase the surface area of the blockchain, allowing it to absorb more activity while charging lower “gas fees”.
And gas fees are very important. Ethereum congestion is legendary, with average fees spike to $55 at the end of last year. The average fee currently sits at $10, which is still high considering competitors like Solana charge less than $0,1 (though to be fair, they get less traffic).
Time is also an important factor. With cryptocurrencies in the midst of an intense downtrend and hawkish regulators on the lookout, the failure of the Consolidation could severely impact investor confidence – further damaging for the price action of ether and thus, influence on other crypto projects.
Meanwhile, so-called Layer 2 like Optimism and Arbitrum have been providing alternative ways to access the Ethereum network with very low fees. While these networks seem to have a promising future, accessing Layer 2 protocols means using bridges to transfer tokens between blockchain layers, which is not the simplest task for them. "new soldier".
In previous articles, I likened Ethereum to a business that generates revenue through fees. If the Consolidation succeeds, then Ethereum will take a huge step forward in becoming, not only the home of the world's second largest cryptocurrency, but also creating a bluechip technology business.
Author: Nathan – Bybit's Lead Tech Writer
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