Ethereum is the most prominent open-source blockchain with smart contract functionality. Since its release in 2015, this platform has enabled the creation of a booming digital economy with many decentralized applications (DApps), ERC-20 tokens, and more. Its native cryptocurrency, Ether (ETH), is the second most valuable cryptocurrency by market capitalization.
Most importantly, Ethereum was founded as a decentralized blockchain, open to everyone worldwide. However, the set of principles around financial freedom and credible neutrality has recently been tested by a major event: The Merge. This event brought significant benefits to the network but made it prone to centralization.
The Merge: Ethereum’s Transition to Proof-of-Stake (PoS)
Ethereum was conceived in 2013 by Vitalik Buterin, who outlined the architecture of this network in a now-famous white paper. Initially, the Ethereum mainnet utilized the Proof-of-Work (PoW) consensus protocol. However, it was highly energy-demanding, raising concerns about Ethereum’s negative environmental impact. The Ethereum development team planned to join the Beacon Chain, which utilized the proof-of-stake (PoS) protocol to remedy this situation. This event, known as The Merge, was completed on September 15, 2022.
The resulting network from The Merge is now known as Ethereum 2.0 (ETH2). It cut Ethereum’s energy consumption by 99.95% compared to ETH1 (the network based on PoW). Also, Ethereum 2.0 is now more scalable through sharding. As a result, Ethereum 2.0 could process over 1,000 transactions per second (TPS) in the first stage. However, some changes in how validators operate occurred to keep the network up and running.
With the arrival of PoS, staking became the central axis of the Ethereum network. Users must stake at least 32 ETH to be part of the nodes that validate transactions. Previously, if you wanted to be part of the Ethereum 1.0 network and participate in PoW mining, all you needed was a mining rig. But a moderately powerful mining rig was a small investment compared to 32 ETH coins (equivalent to more than $42K as of January 11, 2023). Hence, those lacking monetary resources to stake 32 ETH cannot create a validation node directly.
Yet, there is an option of using a third party to participate in the PoS protocol. The disadvantage of this option is that the network tends toward centralization, which goes against the foundation principles of Ethereum. As the ETH price increases, more users seeking to participate in staking will inject liquidity into centralized services. This problem is already visible since more than 50% of the staking is in the hands of only three platforms: LIDO, Coinbase, and Kraken.
Even more critical is that 49.5% of all validation nodes on the Ethereum network are currently deployed in the United States. The situation is even worse considering that most of those nodes rely on Amazon Web Services (AWS) to be online. Since 66% of those nodes are hosting, it would be easy for a third party to remove them at once. Likewise, Germany also concentrates a large percentage of ETH2 nodes.
Let us also remember that the SEC has its eyes on Ethereum. With the transition from PoW to PoS, Ethereum became vulnerable to the point that if the United States government decided to remove all ETH2 nodes from its territory, the network would lose more than half its security and operational capacity.
The New Ethereum Roadmap
To remedy the above situation, Buterin has designed a new roadmap consisting of six development phases (including The Merge), which will develop in parallel over time. Each stage of Buterin’s roadmap includes a set of improvement proposals to upgrade the blockchain’s core code. Below, we briefly describe them.
The Surge: Improvements to Scalability and Privacy
The Surge phase will promote the scalability and privacy of Ethereum. The so-called proto-danksharding (a.k.a. EIP-4844) proposal will introduce a new transaction type known as a blob-carrying transaction. Additionally, the EIP-4844 will also allow for the inclusion of quantum-resistant cryptography and a series of tools that facilitate the development of zk-Rollups and zk-EVM scaling options. The technicalities of these improvements are beyond the scope of this article, but once this stage is complete, Ethereum will be able to scale up to 100 thousand TPS. The network will also have a new cryptographic battery to deal with future threats.
The Scourge: Improvements for Decentralization
This phase focuses on the decentralization of the Ethereum network. The Proposer/Builder Separation (PBS) is a proposed solution to censorship and the Maximum Extractable Value (MEV) attack on the Ethereum network. With PBS, a validator node will propose a block, but another validator node in a different part of the network will build it. PBS will make Ethereum more resistant to censorship and mitigate the negative externalities of MEV attacks.
The Verge: Simplifying Verifications
The Verge phase focuses on simplifying the verifications of transactions on the Ethereum network. It will integrate zero-knowledge proof (ZKP) technology into the network’s verification system. This phase will also bring improvements in terms of security and storage data of the Ethereum blockchain.
The Purge: Toward a Portable and Simple Network
This phase aims to make the Ethereum network more portable and simple. The Purge depends on the success of The Verge for its implementation. This phase will solve the problem of slow synchronization. The Purge will enable fast sync for the Beacon Chain while significantly reducing the network's overhead in data storage.
The Splurge: Solving the Rest of the Network Problems
In this phase, several general improvements will occur. For instance, the EVM will be improved at this point. Also, the Verifiable Delay Function (VDF), a type of cryptographic function making data verification more efficient, will be implemented. However, Buterin could be more precise regarding the improvements in this phase. All indicates that the entire roadmap for Ethereum 2.0 will be completed in 2025.
Final Thoughts
The Merge was an unprecedented demonstration of established cryptocurrency platforms’ ability to evolve to changing conditions. Ethereum’s shift from PoW to PoS dramatically reduced the energy consumption of this network. However, it also made Ethereum more centralized, a situation the crypto community cannot accept. Hence, Vitalik Buterin released a new roadmap for improving the Ethereum network. After implementing all the proposed fixes, the Ethereum network will tend toward decentralization again, making it more secure and reliable. Likewise, ETH will likely increase its price as a result. If you want to invest in Ethereum, you can buy ETH coins on LetsExchange.io. You do not need to register or complete KYC checks to transact on our exchange platform.
Stay tuned for further updates, crypto guides, and market insights from LetsExchange. You can also follow us on Twitter, Facebook, Reddit, Instagram, LinkedIn, Medium, Quora, Telegram, Steemit, and Bitcointalk for first-hand information from our team.