Ethereum co-founder Vitalik Buterin graced the main stage at Singapore Fintech Festival to highlight successes since The Merge in September 2022.
The switch from Proof of Work to Proof of Stake was slated as the event of the century for the cryptocurrency community and in just over a month since The Merge, has already resulted in massive transformations to the digital currency landscape in terms of increased scalability and reduced impact on the environment. As Buterin explained, “Proof of Work relies on a bunch of miners that are running computations on specialised hardware that costs millions of dollars 24/7.”
Proof of Work had numerous criticisms. Buterin continued: “It’s not as secure as it could be. It has issues with centralised. It requires a significant amount of issuance to keep operating and it has this pretty significant environmental issue because of all the electricity consumed and all of the hardware that is rapidly consumed and destroyed by this process of running hardware to do computations 24/7.”
After a two-year long testing period, Buterin explained that Proof of Stake is more secure because of the increased number of validators that secure the Ethereum network as part of an ongoing agreement across existing blocks and when new blocks are created.
These validators in their thousands are creating what is referred to as “added stations” and place “confirmation messages” on each block in parallel. “A block has a very high degree of security, even only for a few seconds after it gets published. We can actually see this in the data,” Buterin said.
Further, estimates have suggested that post-Merge, Ethereum consumes about 99.95% less electricity than it did pre-Merge. The consumption that was previously equitable to a small country’s electricity usage “disappeared” overnight.
Financial exclusion is also a cause for concern. Buterin mentioned that “the reality is that there are eight billion people in the world and most of them are not using blockchain. Even those that are using cryptocurrencies are not doing so through blockchain today.”
He added that while cryptocurrency penetration is high in countries such as Argentina where the local currency is unstable and inflation is high, the risk of trading cryptocurrency through centralised intermediaries is not considered. “It’s a very unfortunate situation because you lose the benefits of choice, transparency, decentralised systems and open ledgers.”
Buterin explained: “The Ethereum Layer 1 blockchain itself focuses on being a stable and dependable system that tries to be as decentralised as possible, tries to be as robust as possible and leaves it to protocols such as Rollups.” Rollups are one of several scaling systems, which are simply methods to make a slow blockchain faster and cheaper.
He continued: “Layer 2 systems can actually be open, permissionless, enhanced, decentralised and all of these things that we expect out of Layer 1. This is not the space for transactions where you need a theory, and the protocol does complicated computations on them. This is just a space where there's a lot of data.
“It's up to these Layer 2 Rollup protocols to interpret that data and take advantage of it to actually create the scalable systems that provide value to users.” In a concluding statement, Buterin added that the long-term goal for Ethereum post-Merge is to move toward the theory of the base layer – Layer 1 – to be stable, dependable and changes very little, similar to Internet protocols today. However, this will take years.
“The switch to Proof of Stake was the first really big change to Ethereum. It really shows that large improvements through the protocol that solve real problems that people have are possible, and these remaining problems are going to be worked on over the next few years.
“There was a huge number of very smart people working on them, and making sure that we have an amazing, scalable, secure, open protocol that has tools that allow people to protect the safety of your accounts, to protect your privacy and improve convenience for users. These are the kinds of things that the Ethereum protocol and ecosystem developments over the next five to 10 years will be working on.”