Ethereum has also enabled the emergence of smart contracts, meaning there is no human intervention in a transaction between parties. Everything is controlled by mathematical codes.
But network performance has not been able to keep up with increasing demand. For several months, ethereum has therefore seen significant congestion, which, among other things, has led to a sharp increase in fees on the network.
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The developers have worked on several measures to improve the network’s performance so that it can process more transactions without degrading the user experience.
These changes have long been grouped under the name ethereum 2.0.
The main changes are the transition from proof-of-work to proof-of-stake, and the deployment of sharding, a solution that aims to divide the network into several subnets, in order to increase processing capacity.
Parting with Bitcoin
Proof-of-work is a mechanism for validating transactions. It asks participants to perform complex calculations in return for the chance to validate a set of transactions and add them to the blockchain. For that effort, these participants will earn a certain amount of cryptocurrency.
The job is to guess, as accurately as possible, a unique alphanumeric string of 64 characters. This work used to be done by amateurs, but the processing power required to perform the effort increases over time. So this so-called mining process is now reserved for specialized companies and organizations – that is, those who can afford to buy the necessary hardware and the power to run it.
Proof-of-work consensus mechanisms such as bitcoin have come under heavy criticism because the related hardware consumes enormous amounts of power.
Proof-of-stake asks participants to put up their own money for the chance to validate transactions and add a block to a blockchain, instead of performing complex calculations.
The more cryptocurrencies a person stakes, the more likely they are to be chosen to complete a block of transactions on a blockchain and earn a certain number of coins.
Not requiring powerful hardware, proof-of-stake is considered a greener consensus mechanism than proof-of-work.
Ethereum “will use at least ~99.95% less energy after merging,” the Ethereum Foundation said.
The Merge aims to connect the application part of ethereum as we know it, namely the entire application ecosystem (Ethereum 1.0), to the new proof-of-stake consensus mechanism (Ethereum 2.0).
As a reminder, this consensus layer was deployed in December 2020, via the launch of the beacon chain.
Ethereum will be Ethereum 1.0 (execution layer) plus Ethereum 2.0 (consensus layer) combined.
