September 15th, an epochal date. Certainly not for those who are campaigning in our country, traditionally refractory to innovation. But certainly for those who believe that blockchain technology is an invention with great potential to change our lives in the coming decades.
After semesters of announcements, postponements and tests, September 15 will mark the historic transition of a blockchain from one consensus model to another.
Cryptocurrencies
What can be done in concrete with the blockchain
by Adriano Marconetto
The blockchain in question is Ethereum, the main decentralized network in the crypto world along with Bitcoin. But compared to the latter, Ethereum was born as a “place” in which to work to change the world. Here the concept of smart contract was developed, a software that allows you to replace a judge or a notary: code is law. Thanks also to smart contracts, Ethereum has become the ecosystem from which the so-called “Decentralized Finance” (DeFi) was born and developed: protocols and applications that replicate traditional finance models on the blockchain, often innovating various aspects. An example above all: the birth of decentralized exchanges such as Uniswap which democratized the activity of supplying crypto liquidity essential to bring together supply and demand. Activities that on exchanges and centralized exchanges are essentially reserved for a few professionals.
The ruglio of the bear
by Adriano Marconetto
The development potential of blockchains, and in particular of Ethereum, is enormous and goes far beyond decentralized finance alone. Its founder, Vitalik Buterin, already in 2018 identified a series of points of attention to be solved to allow its rise: speed of transactions, cost of gas fees, or what each operator must pay to use the blockchain (let’s imagine it as a ‘ highway where we can all circulate but to do so we have to pay a fee) and high energy consumption deriving from the Proof of Work consensus mechanism.
Many of these criticalities are to be related precisely to the Proof of Work consensus model according to which the validation of individual blocks of transactions is carried out by an increasing number of computers necessary to solve algorithms of increasing complexity, which can give the right to a compensation (in Bitcoin on the Bitcoin blockchain and in Ethereum on the Ethereum blockchain).
The ten commandments for approaching the crypto world
by Adriano Marconetto
But there is another way to validate the blocks of a digital chain: it is called PoS, or Proof of Stake. In the PoS, powerful and energy-intensive computers are no longer needed to verify the blocks: this activity is entrusted to validating nodes whose “good faith” is proven by a quantity of Ethereum blocked (in English “staked”) on the node itself. At each new block (currently about every 12 seconds), the protocol chooses one of the many validators and pays him a fee by remunerating the activity performed. This is why staking is becoming an increasingly interesting way to make our cryptocurrencies generate others: it is a perfect example of a win-win, where the user helps the ecosystem to thrive and receives compensation in return.
As we said, after semesters of analysis and testing, the “Merge” will take place in mid-September, that is the union of the “old” PoW-based Ethereum blockchain with the new one based on PoS.
All the latest tests conducted were positive but the risks are nonetheless non-trivial: Buterin himself stated that it is a question of “replacing an old engine in a flying airplane with a new one, and without the plane slowing down or losing altitude”. Not exactly peanuts.
If, as I believe, the operation is successful, the results will be striking and consequently the benefits for the operators. For example, energy consumption will drop by 99.5%: at full capacity it will consume less than 1% of what a network like VISA consumes. With this result, Ethereum is a candidate to become an interesting subject for all institutions that intend to invest in innovative projects with a positive environmental impact.
With the move to PoS, Ethereum will become significantly more scalable, cheaper and faster. Ether, its native token, will gradually become anti-inflationary: apparently the number of Ethereum issued every day will be just over a tenth of the current 12,000. This will cause the number of tokens issued each day to be less than those burned as gas spent in transactions, causing the total amount of Ether in circulation to decrease over time.
With the “Merge” Ethereum intends to propose itself in perspective as the most important digital community of the next decades, where economic incentives are designed to ensure that everyone can reap the right reward for the work done and the support given. We just have to wait until September 16 and cross our fingers.