The Ethereum (ETH) network’s transition from Proof-of-Work to Proof-of-Stake has been covered extensively by the crypto media for years. However, the transition is big enough to get some coverage from mainstream technical journals and publications.
This month, Amy Castor analyzed the move in an article published in the MIT Technology Review. Here are the three key takeaways from this analysis.
Good timing for ETH
The merge, or Ethereum’s transition to PoS, isn’t tightly scheduled but the community expects it to be completed by this summer. While this move has been delayed in the past, this time investors and developers from the community are confident the merge is imminent.
Castor believes the timing couldn’t be better. Proof-of-Work, the consensus mechanism that Ethereum currently relies on, is energy-intensive. A humongous network of specialized computing machines needs to operate around the clock to validate transactions and generate new ETH. According to the MIT Review and data from the Digiconomist, Ethereum uses 113 terawatt-hours per year—as much power as the Netherlands. The carbon footprint and energy density of this decentralized process were already controversial. In 2022, it’s even more hotly debated.
The ongoing invasion of Ukraine has had an impact on the global energy supply. Europe, Asia, and much of Africa face a supply crunch in essential commodities such as natural gas, coal, and crude oil. If the conflict escalates or the supply chain is further disrupted, there could be rolling blackouts and energy shortages across the world.
The Ethereum network could avoid this issue and much of the public’s backlash by transitioning to PoS by mid-year. The merge seems to be happening at a coincidentally perfect time.
A risky path
There’s a lot at stake in this transition. Ethereum is still the world’s second-largest blockchain network. Thousands of decentralized applications, non-fungible tokens, and smart contracts operate on the network, while the total volume of transactions crossed $11 trillion last year. Put simply, Ethereum is a massive warship that attempting a risky maneuver to course-correct. Unless the move is perfectly smooth, something on the network could be at risk of breaking.
Fortunately, the core development team has been testing PoS for more years. The Ethereum 2.0 Proof-of-Stake Testnet Blockchain went live in May 2019, which means there’s been plenty of time to iron out all the bugs and vulnerabilities.
Besides the risk of implementation, experts have been monitoring the impact this transition could have on Ethereum’s decentralization. The PoS model shifts the power balance away from miners to users with the most ETH. However, the distribution of ETH is highly concentrated. At the time of writing, the largest accounts on the Ethereum network hold roughly 42% of the network’s total supply of digital assets.
That distribution is better than other networks but is still highly concentrated. It’s led to some concerns that a move to ETH 2.0 could reduce the network’s decentralization. Only time will tell if this is a threat to the ecosystem.