15 September 2022
Last Thursday, the long-awaited Merge was finally implemented. With this update, Ethereum has transitioned from the Proof of Work (PoW) consensus algorithm to Proof of Stake (PoS). Whereas PoW has miners to add transactions to the blockchain, PoS has validators. These validators lock up an amount of the underlying currency to prove their reliability, which is called staking.
The transition was completed without complications and most parties in the space were able to quickly resume the offering of any services that may have been paused. One of the most important implications of moving from PoS to PoW is the massively lower energy usage: the network is no longer secured by computing power, which lowers the energy required to keep it running by 99.95%. This may remove an obstacle for investors and other parties that hadn’t yet bought Ether because of climate concerns. It remains to be seen what the consequences of The Merge will be, both for Ethereum and the wider crypto ecosystem.
Although The Merge is the most well-known update to the Ethereum network, it will not be the last. Ethereum co-founder Vitalik Buterin shared the next steps during the Merge Viewing Party. Ethereum is supposed to scale from 20 to 100 000 transactions per second in five phases. The Merge was the first of these phases, laying the foundation for further development of the network. Next will be the Surge, Verge, Purge and Splurge phases.
The Surge and Verge upgrades will improve the scalability of the network. During these phases, the Ethereum network will be divided into smaller chunks, so-called “shards”. Because of this, the network will be able to store and process a larger amount of data.
The Purge and Splurge steps will be the finalizing steps towards a faster network. On the current Ethereum blockchain, transactions will often pile up in anticipation of confirmation when there’s a lot of activity on the network. The Purge will reduce how often this happens, increasing the amount of transactions that are possible on the network each second.
According to Buterin, the fun starts after The Purge will be finalized. The Splurge is supposed to stabilize the network, and make sure that earlier upgrades don’t cause any problems. It’s not yet known how long each of these phases will last, and when Ethereum will actually become faster, cheaper and more scalable.
Tim is a Quantitative Portfolio Manager. He holds an MSc in Econometrics and leads the quantitative team. Tim is mainly responsible for quantitative research and development.