Ethereum makes a transition to a more sustainable architecture – the long-awaited The Merge (fusion). This project, which would be the culmination of almost three years of work on the Ethereum blockchain, is expected to be one of the most significant events in the history of the crypto industry.
Although many believe the Ethereum merger should mark a fresh start for a network already used by millions, the transition to proof-of-stake (PoS) and what it could mean for the future of blockchain raise concerns.
Fusion as a solution to scalability
The merger, which is set to take place on Thursday, September 15, is the most significant development to hit the Ethereum blockchain since its inception and one of the biggest upgrades in the history of this cryptocurrency. The merger should solve several problems, including that of scalability.
Scalability has been an issue for the Ethereum blockchain since its inception, with the blockchain being designed to only process around 30 transactions per second.
If that was enough to begin with, the explosive growth of blockchains over the past few years has changed the game. Hundreds of thousands of decentralized applications (dApps) currently process transactions on the Ethereum blockchain, but its current throughput is grossly insufficient.
This scalability issue has drawn developers to several “Ethereum killers”, including options like Solana (65,000 transactions per second) and Polkadot (more than 1,000 transactions per second).
However, The Merge will finally include sharding, a scalability feature that will split the blockchain into multiple chains. Each chain will operate independently and validate its own transactions.
Implementing sharding should increase blockchain throughput to around 100,000 transactions per second, which is much better for large numbers of transactions.
Staking pools and the challenge of centralization
Although The Merge shouldn’t have a scalability problem, there is still a major problem to solve: decentralization. The Ethereum blockchain has become increasingly centralized over time, with a few mining pools wielding significant power over the network and its consensus.
Thanks to the Proof of Stake (PoS) consensus algorithm, The Merge should bring about a change in this regard, but it is only a surface solution.
Due to the shift to PoS, the Ethereum blockchain will experience an increase in capital inflows as more people seek to stake their ETH and earn returns. Several major exchanges have already declared their support for ETH 2.0 staking. With the participation of more people, the same centralization problem that existed with Ethereum in proof-of-work (PoW) mode could recur.
According to a post from Decrypt, there were over 422,000 unique network validators on Ethereum’s Beacon chain at the start of the month, all of which staked around $22.3 billion in assets.
A total of 33% of this amount is held by LidoFinancea liquidity staking protocol that allows people to stake their cryptos without having to reach the 32 ETH minimum required to become network validators.
Another 15% is held on Coinbase, while 8% is held on Kraken and 7% on Binance. When these staking protocols accumulate a substantial amount of ETH, they will be able to wield even greater power over the Ethereum network.
Ethereum’s current evolution seems to extend far beyond its platform. With multiple exchanges and protocols allowing their users to stake ETH 2.0, all of these platforms have become active stakeholders in the long-term future of blockchain.
Key decisions made on these platforms can have a long-term impact on the blockchain.
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