History in the making: Ethereum merges into a Proof-of-Stake protocol

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Ethereum has been a Proof of Work (PoW) protocol since its first block was made the 30th July 2015. Many GPU cards have crunched numbers for rewards ever since at an increasing level of energy consumption, currently at 112 TWH/per year or comparable to that of Netherlands.

A greener Ethereum

Now that is about to change as Ethereum is merging into a Proof of Stake (PoS) protocol. Ethereum tested its PoS concepts in a separate Beacon Chain launched December 1st 2020. This separate chain will form the Consensus layer while the old PoW protocol will form the Execution layer of the blockchain after the merge. With merging into PoS Ethereum foundation estimates energy consumptions will be reduced by 99.95% making it a much more energy efficient protocol going forward.

Setting the stage for sharding

Another key advantage of moving to PoS is that it creates a registry of all the block producers in the smart contracts for staking, something you do not have with GPU miners. This in turn gives the ability to split responsibilities on the blockchain and sets the stage for what is known as Sharding, that is slated for introduction in 2023 to increase the throughput of the Ethereum blockchain from the current roughly 1 million transactions per day.

Key dates to follow

The merge happens in two steps where first the consensus layer is planned to upgrade (Bellatrix upgrade) on the Beacon chain at 11:34:47am on September 6th 2022. The second stage will happen on the execution layer as the Paris upgrade after the Terminal Total Difficulty (TTD) reaches a certain point that depends on the PoW hashrate. This is currently expected between September 10th to 20th and you can find a live estimate based on current hashrate here.

What to do to get ready?

For you as a customer it is important to know that the Merge will keep all transaction history of the blockchain, and you will not need to do anything with your funds or wallets to prepair. We as an exchange have upgraded our nodes in preparation of the Merge, and are closely monitoring the process to make sure it goes smoothly on our end. As disclosed in our latest financial report we are also planning to offer PoS services to our customers on Ethereum and have been actively testing on the Beacon Chain since February 2022.

The Cardano Vasil Hardfork

In memory of a community member

The Vasil Hardfork is named after a much loved and respected Cardano community member and former ambassador to Cardano, the late Vasil St Dabov. It is the most significant network upgrade since the deployment of staking on Cardano in the Shelley network upgrade. The upgrade is part of the Basho phase of the Cardano roadmap that focuses on scaling and network & ledger optimization. Currently it is likely to be rolled out in September and a date will be announced once the requirements for triggering the Hard Fork is met.

Diffusion pipelining

Part of the upgrade is to implement diffusion pipelining so that some of the current block propagation steps will happen more concurrently. This in turn gives the node pools that propagate blocks more headroom with faster block propagation times and sets the stage for larger blocks thus giving more transaction information per block update to the blockchain. Cardano has an approach where it tries to not only have a high throughput, but also to make sure the throughput is efficient with as many transactions as possible in a single block update.

Upgrades to the smart contracts with reference inputs, inline datums and script referencing

Another major upgrade is on the smart contract sides with the Plutus smart language. Reference inputs (CIP-31) will enable data sharing on-chain without having to spend and recreate UTXOs to access the data, thus facilitating more efficient smart contracts. Inline datums (CIP-32) will allow such pieces of data that are attached to outputs instead of just the hash of the datum, and is enabled in part by now having more support for variable sized UTXO entries. In essence it will simplify scripting and also allow users to see the data on the blockchain. Reference scripts (CIP-33) will allow scripts to be attached to outputs as well as allow satisfying validation requirements through a referenced output containing the script. In short this means lesser script sizes for more efficiency of scripts on the blockchain.

Plutus V2, collateral inputs and improvements to VRF

The evaluator for Plutus scripts has been tuned and there is a 20-30% improvement in script resource usage according to IOHK. They have also added functionality that allows better interoperability between Cardano and other blockchains such as Bitocin or Ethereum at lower overall memory and CPU costs. Another improvement is in script collateral (CIP-40) in short making it less costly for users when a script fails to validate. Finally the Verifiable Random Function (VRF) process that creates the randomness for when blocks are produced now only requires one VRF per network hop instead of the previous two. This enables faster block validation and network syncing times without compromising any security.

What to do to get ready?

Cardano uses a hard-fork combinator that will make a seamless protocol transition when the upgrade happens. From the user perspective as an Ada holder for transactions and DApps you do not need to do anything. NBX have already upgraded our nodes to the Vasil HF compatible 1.35.3. We also have a staking pool (ADA North Pool) with testnet pools as well, where we are carefully testing and monitoring the Hard Fork in advance.

This text is intended to inform and is not an investment recommendation.

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