In a few weeks, the Ethereum blockchain will undergo the merger, in one of the biggest and riskiest upgrades in industry history: the move from a Proof-of-Work consensus algorithm to Proof-of-Stake.
XGo product manager Josh Cowell explains what the highly anticipated Ethereum merger is all about – and some of the big questions that currently remain unanswered.
1. Hello! Before we dive into all things Ethereum, tell us about XGo.
Good morning! We are a group of crypto enthusiasts and founded XGo to restore the original purposes and principles of crypto beyond making money (or losing it!) fast. We have a sophisticated web trading suite and live staking offering – but that’s not our only focus, and there’s a lot more in the pipeline.
2. Can you tell us more about the history and motivations of the Fusion?
Ethereum went live in July 2015 – and fast forward to now, ETH is the second largest cryptocurrency in the world.
Much like Bitcoin, the network currently uses a Proof-of-Work consensus model to secure the blockchain. This means that crypto miners use machines to calculate numbers for the purpose of validating transactions and earning ETH rewards. It requires a lot of energy to operate – and works against decentralization due to the way it is controlled by a few larger and more sophisticated mining operations.
There have been many improvements over the lifetime of the Ethereum blockchain, but the upcoming merge is probably the most anticipated blockchain upgrade yet. This will mark the network’s move to proof-of-stake – and while this move was considered even before Ethereum went live, it took more than eight years to get here.
This new chain will be secured by staking validators. These are groups of individuals who stake their Ethereum to earn ETH rewards. Their participation and presence make it possible to secure and decentralize the network.
3. What are some of the benefits of merging?
Well, after the merge we should see increased security by decentralizing the network and relying on a larger pool of validators. The barrier to entry is significantly reduced compared to mining.
Additionally, power consumption to maintain the blockchain is expected to drop by over 99% – and average block times could drop by up to 12%. PoS will also lay the foundation for innovations such as sharding that will further increase scalability and speed.
4. But surely there are disadvantages?
There is an argument that the merger might actually reduce security and lead to additional centralization because there are a few big players involved in staking.
And some fear that it will be easier for governments around the world to control Ethereum at the protocol level, as they can impose rules and regulations on these large entities staking ETH, which could censor transactions. We’ve already seen momentum here after the Tornado Cash sanction.
Many miners are also strongly opposed to proof-of-stake because they will no longer be able to use their hardware to earn ETH rewards – and that’s a big blow considering the high cost of this equipment. When the merge takes place, we might see a proof-of-work (ETH-W) hard fork emerge, but that won’t be easy as the majority of miners will have to agree on a path forward or they will face a dilution of value over several ranges.
5. And if people want to start staking… how can XGo help?
To run your own validator node, you need to have 32 ETH. That’s a lot of crypto.
Our product Superfluid allows people to get involved in reward staking with a much lower barrier to entry – and what’s best is that there’s no lock-in, great rewards and the freedom to get started. to use assets for trading and staking at the same time.
6. Tell us about your attitude towards safety.
We are closely monitoring what is happening with the merger – keeping an eye on the sentiment of miners. We will also support ETH-W futures if a majority-favorite fork emerges. And if that happens, you will be able to trade both versions of Ether on XGo.
Security is also something we are extremely aware of. We will implement two-way replay protection by default to ensure that trading on one forked channel is not valid on the other. The original chain shouldn’t eliminate the old chain either – and trading on the two should be differentiated, requiring all wallets to be upgraded to support the new network.
7. So, have you chosen a side — Proof-of-Work or Proof-of-Stake?
XGo champions the vision of the Ethereum Foundation and it is important to note the response of the ETH community to the previous DAO hack, creating Ethereum Classic (ETC.) The careful action of the community and developers saved the network, so it is fair to say this is not their first rodeo and therefore it is unwise to dismiss ETH-W altogether.
We plan to support tools for all parties: seamless conversion of PoW tokens to ETH PoS with protection against two-way replay attacks and access to staking rewards for the general public, and ETH PoW fork futures trading if a lead fork (ETH-W) emerges, alongside ETH PoS markets.
8. What are the big questions about the merger that remain unanswered?
It will be interesting to see how the decentralization of Ethereum evolves with the merger. Will reducing physical barriers allow many small participants to secure the network and increase decentralization? Or will the monopolies of fewer and bigger players prevail?
Hardware is provided in partnership with XGO.
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