Ethereum 2.0: network takes an important step towards being the foundational infrastructure of the Web 3


In the early hours of last Thursday in Brazil, one of the most anticipated events in the crypto world in recent years took place: the eagerly awaited, widely publicized and long-delayed Merge.

Since 2020, this update of the Ethereum network (ETH) has been expected to happen and the wait, it can be said, was not in vain.

Despite the organizational structure of the Ethereum foundation being in a community format, with a very tenuous hierarchy, many people contributing from all over the world and the main participants being much younger than the vast majority of CEOs of well-known companies, the update was a tremendous success, it happened without any serious incident. The network did not stop and passed unscathed to all users.

And it was not little that was changed in terms of network structure to achieve the ultimate goal of transforming Ethereum’s consensus form from proof of work (PoW) to proof of stake (PoS).

Briefly explaining, PoW is based on solving complex algorithms to define who will register the block and will receive the reward for it, while PoS is based on proving that you have a certain amount of network tokens to define who will register the block. block and does not need high premiums as an incentive, since the network token itself is remunerated via what we call staking.

To make this possible, it was necessary to divide the Ethereum network into two parts, one for execution (which defines and organizes operations) and another for consensus (registration of blocks), fork the network to a testnet and then turn off the current network and start the new network by loading all history.

And all this was done without affecting the millions of daily operations, billions of dollars in network DeFi protocols and the 10,000+ protocols running applications. This, without a doubt, justifies the delays in the implementation and demonstrates that the care was extreme and very well compensated for having a migration without any relevant incident.

The only parallel I can find with such a system update is the change between 1999 and 2000. The famous “bug” of the millennium. This moment was marked by everyone who worked at that time, as there was a doubt as to whether computers would be able to understand that the year 00 would be 2000 and not 1900.

Everything went well, but the preparations were huge. I even remember that I, a CCF trader at the time, had to keep a maximum distance from São Paulo, so that I could be called in case of an emergency.

Well, the Merge happened, it was a success, but now what?

Ethereum, switching from PoW to PoS, takes all the talk of not adhering to ESG practices from its heel, given that energy consumption is expected to drop immensely. This, no doubt, should aim these cannons even further towards Bitcoin, which continues with PoW.

In favor of Bitcoin is the fact that with the migration of miners to the West, namely the USA, the percentage of use of renewable energy has grown a lot, and I have already heard estimates that say it is above 60%.

This discussion I believe should intensify, although the ESG moment is not the best, having seen the discussions about the approaching winter in Germany and how they will be able to provide energy for people to stay warm.

Another important factor for Ethereum is that it starts to have a much lower issuance of tokens, and may even, if the use of the network is intense, have a deflationary trajectory. This should, in the long run, support the price of ether, the network’s token.

One of the concerns of all systems that use PoS is the centralization of consensus, which determines the registration of blocks, in a few agents. This is due to the fact that these agents could collude to manipulate the network in their favor.

From the analysis of the network so far this does not seem to be happening, as the percentage mined by the first five miners is similar to what we had in PoW. I would say that this has a forecast of improvements since, from the little I’ve seen about it, the incentives for the entry of new validators are very interesting. Not to mention more technical factors, such as the fact that the largest current miner is LIDO, which is a framework that encompasses several independent validators.

From the perspective of risks on the horizon, I would keep an eye on the attitude of the US legislator, who has been doing much more scrutiny on PoS networks to see whether or not they resemble securities.

An important factor to note is that the speed of the new network is a little faster than the PoW network, but nothing significant, and that it still remains an expensive network for small transactions. The decision was taken, at that moment, only to make the transition from PoW to PoS and that other issues would be addressed a posteriori.

By the way, there will be no shortage of news on the Ethereum network, as seen in the plan for the next five years, which already includes at least four more important updates (the Surge, the Verge, the Purge, the Splurge) that will lead the network to process 100,000 transactions per second, that it is similar to the capacity of the Visa network today.

Although it seems like a lot, here it is worth saying that the Ethereum network is on its way to being not only the financial network of the world, but the network of everything, supporting companies, notaries, governments, people, etc. that is, a new internet. Putting it in that perspective, that 100,000 doesn’t seem too big, which should make room for a lot of Layer 2 networks.

Now trying to move from looking at the trees to looking at the forest, Ethereum, with this update, is getting closer to being the main world infrastructure of this new internet that is being created, Web 3, where we will have NFTs, metaverse, DeFi, among others. others. Or, as Camilla Russo put it in the title of her brilliant book about the early years of the Ethereum foundation: “the Infinite machine”.

It was great to be a part of this moment and this transformation. And when I say taking part, I really mean taking part, since I joined the more than 30,000 people who followed the initial moments of the Merge via Youtube from the Ethereum foundation, including the presence of Vitalik Buterin, who as a person asked to give a message in the first few minutes after the merge, demonstrated that he really is one of the best programmers in the world.

Will we be using the Ethereum network in a few years as we use the internet today? Few know how the internet really works, few participated in its formation, but everyone plugs into 4G, 5G or wifi and uses it everywhere. I think so. Is that you?

I’m here and waiting for your feedback.

Youtube: @Fintrender
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Used for this article:

ETH MERGE –  YouTube com Jeff Prestes

Ethereum Merge party – YouTube

25 Top ETH miners

Vitalik Website

Miles Deutscher Twitter on What’s Next at ETH

Book: Infinite Machine – Camilla Russo

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