John Lee Quigley

John Gilbert

Bitcoin

What Is Proof-of-work (PoW)? All You Need to Know

<h2 class="wp-block-heading">What are consensus mechanisms?</h2>



Blockchain consensus mechanisms are the cornerstone of an emerging decentralized society of Web3, finance and governance. However, the architects of this new world have long debated over the design of these mechanisms. And in a quest for a perfect balance between scalability, security and decentralization, they have created a never-ending list of options.&nbsp;



So anyone wanting to build on or compare blockchains and their corresponding ecosystems must comb through the history of trade-offs. Here is what you need to know to help catch you up to speed.



Takeaways:



<ul class="wp-block-list">
<li>A consensus mechanism is a gamified system of protocols that enables a decentralized computer network to agree on a blockchain state. They aim to provide a balance of security, scalability and decentralization to the network.</li>



<li>The industry has settled mainly on the proof of work (PoW) and proof of stake (PoS) consensus mechanisms.&nbsp;</li>



<li>User adoption and application development around the most popular blockchains have made it difficult for alternative consensus mechanisms to disrupt the industry.&nbsp;</li>



<li>But Ethereum’s recent transition from PoW to PoS demonstrated that disruption is possible.&nbsp;&nbsp;&nbsp;</li>
</ul>



This guide will explain how consensus mechanisms work and the critical differences between the most prominent types.&nbsp;



<h2 class="wp-block-heading">How consensus mechanisms work</h2>



To understand how consensus mechanisms work, it&#8217;s important to first recognize that the end goal is to maintain a secure and public record of all interactions and transactions of network participants. Miners or validator nodes manage all updates and changes to that record. In such a system, it&#8217;s crucial to establish a trusted way to ensure that no peer tries to cheat other participants and that they add honest transactions to the ledger. For example, users should not be able to double-spend assets they own or manipulate the system to hold more coins than they originally had.



A consensus mechanism provides the set of protocols and rules a blockchain ledger uses to protect itself against such potentially malicious transactions. In most cases, the protocol achieves this through cryptographic challenges and reward incentives that allow network leaders ( miners or validators) to verify the authenticity of each transaction users try to execute. Once validators reach an agreement (consensus) on the legitimacy of a transaction, the protocol adds it to the immutable blockchain record.



Consensus mechanisms use incentives and rewards, usually new coins, to encourage network leaders to propose only legitimate transactions to peers. This makes it difficult and expensive for anyone trying to cheat the system. In most protocols, users must control over 51% of the network’s computing power simultaneously or acquire a significant portion of the underlying network’s currency.



<h2 class="wp-block-heading">Why are there different types?</h2>



Blockchain architects designed different types of consensus mechanisms for various blockchain use cases and network conditions. They also provide multiple ways for projects to address the famous blockchain trilemma.



The trilemma proposes that distributed systems can only achieve two of the three requirements: scalability, decentralization and security. Thus, blockchains must make a trade-off based on their specific objective.



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/2VI-RMpHApXjN5KMELlo8-8MLvZFFfOg36tpWxT7mfzYPja62w-X2yUThRwxE8PcCXmLcta2uqBKtruiojS1rXSG1NAATCMQWy9ScscIqTVQylNfdybJQfOomn34pl-1DsVwfAQkrQnAGvfxHVcy1k0" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://www.ledger.com/academy/what-is-the-blockchain-trilemma">Ledger</a></figcaption></figure>



In a real-world example, Bitcoin’s <a href="https://blockworks.co/news/what-is-proof-of-work">proof of work</a> (PoW) favors decentralization and security, while Ethereum’s <a href="https://blockworks.co/news/proof-of-stake-investors-guide">proof of stake</a> (PoS) model leans more on scalability to power decentralized applications (dapps). However, this example is an oversimplification, as the debate on protocol security and decentralization is complex and nuanced.  



Read more: <a href="https://blockworks.co/news/ethereum-decentralization-after-the-merge">Why Ethereum Is More Decentralized After the Merge</a>



Moreover, other blockchain consensus mechanisms implement a modified version of PoW or PoS depending on the degree of speed, security or decentralization they wish to achieve.



<h2 class="wp-block-heading">Blockchain consensus mechanisms</h2>



Bitcoin’s creator introduced the world to a new way for peers on a computer network to reach a consensus on the ledger’s state in a decentralized fashion. Since then, technologists have experimented with other consensus models, making the trade-offs mentioned above. 



<h3 class="wp-block-heading">Proof of work (PoW)</h3>



The fist consensus mechanism, <a href="https://blockworks.co/news/what-is-proof-of-work">Proof of Work</a> was invented by Bitcoin creator Satoshi Nakamoto. Other blockchain networks, including Litecoin and Dogecoin, also adopted it. The model requires network leaders called miners to expend computing power to solve an extremely complex cryptographic puzzle. Being the first to complete the puzzle and submitting this “proof of work” to other peers qualifies the miner to add a new block to the blockchain and receive the associated coin rewards.



Read more: <a href="https://blockworks.co/news/what-is-proof-of-work">What is Proof-of-Work?</a>



The security of the PoW model lies in the vast amount of computing power miners expend in the never-ending race to solve the following proof of work. With several miners acting in the network’s best interest, the economic cost to attack the system grows significantly to the point that it becomes impractical for a malicious actor to try otherwise.



PoW makes Bitcoin the most secure computing network on the planet. However, many have misconceptions about the network’s energy usage addressed in our in-depth guide to PoW blockchains.



<h3 class="wp-block-heading">Proof of stake (PoS)</h3>



<a href="https://blockworks.co/news/proof-of-stake-investors-guide">Proof of stake</a> emerged in 2012 as an alternative to Bitcoin’s PoW. The model replaced miners with validators, requiring that interested entities stake a significant portion of the underlying network’s currency for a right to propose and add new blocks to the blockchain. The network derives its security from aligning incentives, because having a significant stake naturally requires validators to act in good faith.



Read more: <a href="https://blockworks.co/news/proof-of-stake-investors-guide">The Investor&#8217;s Guide to Proof-of-Stake</a> 



Ethereum became the largest PoS network after the historic switch from PoW in 2022. Although PoS coins <a href="https://cryptoslate.com/cryptos/proof-of-stake/">represent</a> only 29% of the entire crypto market value, the consensus mechanism is the most widely used. Other popular blockchains such as BNB Chain and Cardano implement the model, despite its widely known security trade-offs explained in Blockworks’ proof of stake guide.



Read more: <a href="https://blockworks.co/news/proof-of-work-vs-proof-of-stake-whats-the-difference">Proof of Work vs. Proof of Stake</a>



<h3 class="wp-block-heading">Delegated proof of stake (DPoS)</h3>



The delegated proof of stake (DPoS) consensus mechanism is a modified version of PoS, generally considered more democratic. Under this model, users stake tokens to vote for delegates who will validate transactions on the network. The more tokens delegated to a validator, the greater chance they have to produce blocks on the network and earn rewards that they share with stakers. Examples of leading blockchain networks running the DPoS model include Solana, Tron, EOS and Tezos.



<h3 class="wp-block-heading">Proof of authority (PoA)</h3>



Proof of authority (PoA) is a consensus model whereby network validators consist of pre-approved participants selected based on their reputation. It is usually ideal for private blockchains or specific organizational use cases where only a limited set of validators are needed to update the ledger. The few validators required for a PoA system make them highly scalable but centralized. Vechain and Blockstream’s Liquid sidechain are the most famous examples of public blockchains using a PoA implementation.



<h3 class="wp-block-heading">Proof of activity (PoA)</h3>



Proof of activity (PoA) is a hybrid consensus model that implements aspects of PoW and PoS. The process initially begins with miners solving a cryptographic puzzle to propose a new block, which is, in turn, signed by validators before it is added to the blockchain. Miners and validators receive a portion of block rewards for their contributions to the network’s security. Decred is the foremost example of a blockchain project running on proof of authority.



<h3 class="wp-block-heading">Proof of burn (PoB)</h3>



The proof of burn (PoB) consensus mechanism implements a novel approach to reduce the heavy energy requirements of PoW systems. Under this modified model, miners burn a portion of their coin holdings to receive virtual mining machines, which grant them the right to propose and mine new blocks. Miners transfer funds to verifiably unspendable addresses and focus on growing their virtual mining rigs to maximize profitability. Slimcoin, launched in 2014, implements the PoB consensus model, as does modular blockchain Koinos, which was launched in 2022.



<h3 class="wp-block-heading">Proof of capacity (PoC)</h3>



Proof of capacity (PoC) is another consensus model that attempts to lower the high energy demands of PoW. Blockchains that utilize this model require miners to use available hard drive space on their computers to provide solutions to a less complicated cryptographic puzzle. The answer to the dilemma is pre-stored when the user becomes a node, with a larger hard-drive space increasing a miner’s chances of winning block rewards. First-generation blockchains such as Chia, SpaceMint and Storj implement a PoC model.



<h3 class="wp-block-heading">Proof of elapsed time (PoET)</h3>



Proof of elapsed time (PoET) is a consensus algorithm developed by Intel Corporation and primarily utilized by permissioned blockchain networks. It implements a lottery-like model to choose a validator for the next block. Using immutable and openly verifiable code ensures that all participants have equal chances of being selected as validators. Notably, there are usually no economic rewards for PoET participants as this model is primarily used for organizations and corporations. The enterprise-focused distributed ledger solution Hyperledger Sawtooth implements the PoET model.



<h3 class="wp-block-heading">Proof of history (PoH)</h3>



Proof of history is a time-based consensus model pioneered by the Solana blockchain. It addresses a flaw in PoW systems: resources spent by validators to agree on the time and ordering of transactions. PoH implements an internal clock functionality based on cryptographic proof to enable near-instant processing and transaction finality. Solana is the only known public blockchain that utilizes this consensus model, although the project supplements it with PoS and other technologies to ensure scalability.



<h2 class="wp-block-heading">What this means for investors</h2>



Consensus models provide a metric for evaluating a project’s long-term potential. The most viable networks ideally have a clear path to sustainability and scalability while maintaining a reasonable level of decentralization. Although newer consensus models may emerge, the most widely-adopted implementations will continue to play a vital role as the industry advances toward mainstream adoption.



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Consensus mechanism

The Beginner’s Guide to Consensus Mechanisms

Casey Wagner

David Canellis

The biggest Bitcoin block ever has just been mined, 14 years after the blockchain went live.



It contained an Ordinal, the controversial <a href="https://blockworks.co/news/cant-ignore-bitcoin-nfts">new genre of NFT which recently debuted on Bitcoin</a>.



In an apparent tease for a forthcoming bitcoin NFT collection, Luxor Mining and popular Bitcoin figure Udi Wertheimer mined the largest-ever bitcoin block, the company announced Tuesday.&nbsp;



Block <a href="https://mempool.space/block/0000000000000000000515e202c8ae73c8155fc472422d7593af87aa74f2cf3d" target="_blank" rel="noreferrer noopener">774628</a> housed the “Taproot Wizard,” a play on the legendary “magic internet money” meme featuring a bitcoin wizard. It was 3.96MB large, close to Bitcoin’s block size limit (which can be <a href="https://blog.bitmex.com/the-segwit-transaction-capacity-increase-part-1/" target="_blank" rel="noreferrer noopener">stretched</a> to 4MB with SegWit). 



The <a href="https://mempool.space/tx/0301e0480b374b32851a9462db29dc19fe830a7f7d7a88b81612b9d42099c0ae" target="_blank" rel="noreferrer noopener">transaction</a> containing the Ordinal made up 3.94MB, about 99.5%. There were 63 transactions in total, including the 6.25 <a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a> ($149,000) coinbase reward, which also went to Luxor.



&#8220;The image is higher resolution so it contains more pixels (and thus more bytes),&#8221; Colin Harper, head of research and content at Luxor Mining, told Blockworks.



Luxor announced the block via <a href="https://twitter.com/LuxorTechTeam/status/1620921129287430144?s=20&amp;t=vje_Chh6vf4U_Q9UbW0bzQ" target="_blank" rel="noreferrer noopener">Twitter</a> Tuesday evening, teasing followers that other wizards may be available soon. The firm earned an additional 0.009 BTC ($209) in fees for successfully mining the block.



<a href="https://blockworks.co/news/cant-ignore-bitcoin-nfts">Ordinals</a> — the new platform taking the industry by storm — store texts, images, SCG or HTML on-chain, attached to individual satoshis, bitcoin’s smallest unit currently worth $0.000231.&nbsp;



Read More: <a href="https://blockworks.co/news/cant-ignore-bitcoin-nfts">Bitcoin NFTs: Love ‘Em or Hate ‘Em, You Can’t Ignore ‘Em</a>



Similar to the NFT concept, inscribed satoshis can then be transferred freely via the Bitcoin blockchain.



<figure class="wp-block-embed aligncenter is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Behold, the Taproot Wizard, untethered and freed from his bondage! In his ubiquity, he&#39;s present in the hearts, minds, and hard drive space of Bitcoin node operators the world over. He refuses to be censored, he refuses to be silenced.<a href="https://t.co/WCjQpTRMLg">https://t.co/WCjQpTRMLg</a> <a href="https://t.co/gkxeAS4rOm">pic.twitter.com/gkxeAS4rOm</a>&mdash; Luxor Mining (@LuxorTechTeam) <a href="https://twitter.com/LuxorTechTeam/status/1620922782845669378?ref_src=twsrc%5Etfw">February 1, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">This image is&nbsp;<a href="https://ordinals.com/sat/1308063627208201" target="_blank" rel="noreferrer noopener">inscribed</a>&nbsp;forever to satoshi 1308063627208201</figcaption></figure>



The features are made possible using a loophole from the Taproot upgrade in 2021, which enabled “practically unlimited (capped by block size) storage using Opcodes, an executable script in a txn that can store arbitrary data,” <a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analyst <a href="https://twitter.com/MattFiebach" target="_blank" rel="noreferrer noopener">Matt Fiebach</a> said.



Ordinals creator Casey Rodarmor boasts the NFT protocol holds digital artifacts to a “higher standard,” he wrote in a <a href="https://rodarmor.com/blog/" target="_blank" rel="noreferrer noopener">blog post</a>. Ordinals cannot be stored off-chain or on centralized servers, he said.&nbsp;



Industry members continue to take a mixed view on Bitcoin NFTs, but Ordinals appear to be here to stay.



Updated Feb. 2, 2023 at 12:05 pm ET: Added comment from Luxor Mining&#8217;s Colin Harper.



Updated Feb. 2, 2023 at 1:39 pm ET: Adjusted excerpt.



Updated Feb. 2, 2023 at 4:33 pm ET: Corrected Bitcoin&#8217;s block size limit.



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What Was Inside Bitcoin’s Biggest Block?

Bitcoin’s novel proof-of-work (PoW) consensus model is a technological marvel. It enabled the world’s first decentralized monetary system and paved the way for new distributed technologies underpinning a $1 trillion industry. However, several factors currently threaten the existence of PoW, leading to historically low levels of bitcoin mining profitability, high energy consumption and concerns about the network&#8217;s long-term survival.&nbsp;



Satoshi Nakamoto and many of the founding members of the bitcointalk forum foresaw these challenges. Satoshi proposed a solution that envisioned a multichain ecosystem operating symbiotically. Merged mining — initially implemented by Namecoin in 2011 — has been used in various consensus mechanisms.&nbsp;&nbsp;&nbsp;&nbsp;



<a href="https://syscoin.org/" target="_blank" rel="noreferrer noopener">Syscoin</a> is one of the first blockchains with smart contract functionality and Ethereum virtual machine-compatibility, to use merged mining. This means that Solidity/Ethereum developers can build on a blockchain with security imported from the bitcoin mining network. Their unique approach solves two critical problems in the fragmented crypto ecosystem. First it offers the Bitcoin network a path toward sustainability and profitability. And secondly, its virtual machine capability provides a base layer of programmability that can scale beyond the constraints and security vulnerabilities of Ethereum’s application network.&nbsp;&nbsp;



<h3 class="wp-block-heading">Why bitcoin mining profitability is in decline</h3>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="244" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg" alt="" class="wp-image-36837" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-mining-profitability-chart-1-2-1024x244.jpg?w=1600 1600w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Bitcoin mining historial profitability | Source: <a href="https://bitinfocharts.com/comparison/bitcoin-mining_profitability.html#3y" target="_blank" rel="noreferrer noopener">BitInfoCharts</a></figcaption></figure>



Bitcoin mining is at historical levels of unprofitability. Miners currently earn 0.064 USD for one terahash per second, a figure that drops below levels last seen in October 2020. On a broader scale, <a href="https://cointelegraph.com/news/top-3-reasons-why-bitcoin-hash-rate-continues-to-attain-new-all-time-highs" target="_blank" rel="noreferrer noopener">it could take</a> up to 11 months for a large-scale mining operation to break even and 15 months for a retail miner to achieve the same feat.



Despite the decline in bitcoin’s price, miners haven’t stopped or slowed down production — in fact they <a href="https://cms.blockworks.co/bitcoin-mining-economics-explained/" target="_blank" rel="noreferrer noopener">have increased it</a>. When the network adds more computing power, the protocol makes mining more difficult, and therefore expensive.



Increased participation is an indication that miners either believe that the hashrate will eventually drop from miner capitulation — resulting in lower energy costs — or the BTC price will rise to a level profitable to miners, or a combination of both.&nbsp;



For capitulation to occur, the network needs bloated and over-leveraged mining operations to go out of business. In the previous cycle, miner capitulation occurred between November 2018 and January 2019, triggering a sell-off that correlated with a bottom in bitcoin’s price.&nbsp;&nbsp;



The difficulty and hashrate decreased, and profitability spiked later in June 2019. But more importantly, miners who survived that capitulation received the highest returns for the BTC they mined at the bottom of the market.&nbsp;



Miners today believe that surviving these historic levels of unprofitability will result in similar returns in the future. But this trajectory of parabolic growth becomes increasingly difficult to maintain as bitcoin loses market dominance to competing digital assets. And the halving cycle only exacerbates this problem by cutting block rewards in half every 4 years.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



Read more: <a href="https://cms.blockworks.co/bitcoin-mining-economics-explained/" target="_blank" rel="noreferrer noopener">Is Bitcoin Mining Still Profitable? The Economics Explained</a>



If bitcoin is unable to achieve another parabolic rise after the next halving cycle, then miner capitulation may happen en masse, triggering a deleveraging pattern that represents a fundamental departure from the bitcoin mining business model. Instead of trying to be the <a href="https://cms.blockworks.co/bitcoin-mining-economics-explained/" target="_blank" rel="noreferrer noopener">last miner standing in periods of unprofitability</a>, miners will try to avoid the effects of the halving cycle by being the first to leave.&nbsp;



This scenario, though, can be avoided if miners find alternative revenue sources for their mining equipment.&nbsp;



<h3 class="wp-block-heading">Bitcoin’s energy consumption concerns</h3>



Bitcoin has seen increasing backlash for its energy usage following Ethereum&#8217;s switch to proof-of-stake (POS). <a href="https://cointelegraph.com/news/environmental-groups-want-bitcoin-to-follow-ethereum-s-example-in-moving-to-proof-of-stake" target="_blank" rel="noreferrer noopener">Some climate groups</a> have called for Bitcoin to move away from PoW and retire the legacy consensus model.&nbsp;



Many of these criticisms ignore that the need for cheap energy incentivizes greater efficiency over time. And Bitcoin’s POW represents a small percentage of energy compared to the energy consumed by industries like gold mining, paper currency and banking. Despite the overblown concerns, the growing perception around POW puts immense pressure on bitcoin miners. The network needs to address the energy consumption criticisms or risk governments taking significant measures, such as <a href="https://cms.blockworks.co/new-york-passes-bill-restricting-carbon-fueled-crypto-mining-operations/" target="_blank" rel="noreferrer noopener">outlawing mining</a> if energy costs keep rising.



Ideally, bitcoin miners require more favorable dynamics to maximize investment returns. Relying on unlikely scenarios such as miner-friendly government regulations and increased transaction fees on the network does not suffice. Instead, the solution to reduced bitcoin mining profitability and energy concerns could lie somewhere else — in the concept of merged mining.



<h3 class="wp-block-heading">How merged mining solves Bitcoin&#8217;s energy problem</h3>



<a href="https://syscoin.medium.com/the-ultimate-guide-for-merged-mining-syscoin-602a151c9da2" target="_blank" rel="noreferrer noopener">Merged mining</a>, also known as auxiliary proof-of-work (AuxPoW), is a mechanism that allows miners to mine multiple networks without additional energy usage. In the case of Bitcoin, miners can submit proof-of-work already performed on the parent network (Bitcoin) to validate blocks on an auxiliary network.



The auxiliary network inherits Bitcoin’s robust security model and is more resistant to 51% attacks. In return, miners receive lucrative rewards in the form of coins from the auxiliary network, thus subsidizing costs associated with their mining operation.&nbsp;



Merged mining solves Bitcoin’s energy problem by ensuring that computational power is reused to incentivize miners and underpin another network. The auxiliary network is effectively carbon neutral, as miners do not expend additional energy resources.&nbsp;



Merged mining can help prevent major deleveraging by offering miners an easy and reliable second income stream from block subsidies.



When Satoshi Nakamoto<a href="https://bitcointalk.org/index.php?topic=1790.msg28696#msg28696" target="_blank" rel="noreferrer noopener"> first envisioned the concept</a> of merged mining, he described a mechanism that allows a separate blockchain to “share CPU power with Bitcoin.” Fast forward to the present, and about 20%-30% of the global Bitcoin hashrate simultaneously mines Syscoin. This not only provides a second income, but it also provides a base for the network to power other use cases beyond Bitcoin’s primary utility as a worldwide monetary system.



Syscoin, in combination with Jax.Network, is launching the <a href="https://syscoin.org/news/global-merged-mining-alliance-launched-by-syscoin-and-jaxnetwork" target="_blank" rel="noreferrer noopener">Global Merged Mining Alliance (GMMA)</a>, to bring more awareness to merged mining and expand Bitcoin’s network.



Dylan Stewart from Syscoin said, “We believe in merged mining and would like to see wider adoption and consideration beyond ourselves. This also should garner appeal for every mining pool not currently taking advantage of it due to the essentially free income they&#8217;re foregoing by not participating, especially in the wake of many operations currently being unprofitable due to energy costs.”



<h3 class="wp-block-heading">How Syscoin delivers a secure and scalable blockchain application layer</h3>



Syscoin takes a novel approach to solving the famous blockchain trilemma (i.e., decentralization, security, scalability). At the base layer, Syscoin benefits from Bitcoin&#8217;s substantial decentralization and security model through merged mining. Syscoin further implements Chain Locks, an<a href="https://dashnews.org/andreas-antonopoulos-calls-dash-chainlocks-a-smart-way-of-preventing-51-attacks/" target="_blank" rel="noreferrer noopener"> industry-accepted</a> solution that mitigates 51% attacks through independent verification by masternodes.



As an Ethereum virtual machine-compatible network, Syscoin achieves scalability through a native implementation of rollups. Rollups support off-chain computation and chain-state storage, allowing applications to process thousands of transactions per second while posting only minimal data to the mainnet.&nbsp;



Syscoin also scales through <a href="https://ethereum.org/en/developers/docs/scaling/validium/" target="_blank" rel="noreferrer noopener">Valadium</a> – another roll-up-centric solution that can theoretically handle over 9,000 transactions per second per rollup through off-chain data availability. Hundreds, if not thousands, of rollups can run off of the Syscoin network in parallel independence. In addition, they engineered Proof-of-Data Availability, a new standard aimed at making Valadium a more reliable and censorship resistant solution for financial applications.&nbsp;



“Currently, Ethereum is the only other chain we know of to be working on this in the form of Proto-Danksharding, a solution similar to ours we each arrived at in isolation, which speaks to the viability of it,” Bradley Stephenson of the Syscoin Foundation said, “However, Ethereum&#8217;s solution is at least a year away, and given the historical gaps between their roadmap and actual implementation, could very well be much longer whilst our solution is already on testnet.” ​​&nbsp;



These scalability features enable Syscoin to power Web3 use cases, including DeFi primitives, gaming and NFTs.



Syscoin&#8217;s architecture demonstrates that Ethereum&#8217;s POS consensus model does not deliver the most<a href="https://jsidhu.medium.com/blockchain-idealisms-b61c5781ddc3" target="_blank" rel="noreferrer noopener"> environmentally friendly, secure and scalable solution</a>. PoS networks notably have a lower carbon footprint (up to 99%). Yet, at best, they are less decentralized and fail to provide the same level of robust security as a PoW system such as Bitcoin.&nbsp;



“Proof-of-stake models have a tendency towards cartelization or centralization,” Syscoin’s Dylan Stewart explained. “This benefits the wealthiest ETHstakers at the expense of the poorer, a problem compounded by ETH&#8217;s already extremely inequitable distribution stemming from their pre-mine.”



Syscoin enables a carbon-neutral network that preserves Bitcoin&#8217;s time-tested security and decentralized model. It also supports the development of a network that handles transactions in a manner that reflects Satoshi&#8217;s initial vision of scalability.



This content is sponsored by <a href="https://syscoin.org/" target="_blank" rel="noreferrer noopener">Syscoin</a>.



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POW Isn’t Dead: Merged Mining Solves Bitcoin’s Energy Problem

Shalini Nagarajan

Sebastian Sinclair

<div id="highlights-block_6322c42640e46" class="highlights">
 <ul>
 <li>Ethereum first showed an intention to switch to proof-of-stake soon after its inception in 2015</li>
 <li>Co-founder Vitalik Buterin’s book on proof-of-stake compiled over the last 10 years is due later this month</li>
 </ul>
 
</div>



Ethereum has finally switched its underlying consensus model to proof-of-stake (PoS), following the culmination of <a href="https://www.trustnodes.com/2019/12/28/vitalik-buterin-in-2015-proof-of-stake-in-9-12-months" target="_blank" rel="noreferrer noopener">seven years</a> of planning by the blockchain’s core developers.



The protocol’s Merge triggered at 6:43 am UTC (2:43 am ET) on Thursday, Sept. 15, as the blockchain reached a <a href="https://bordel.wtf/" target="_blank" rel="noreferrer noopener">Total Terminal Difficulty</a> of 58,750,000,000T. Ether traded around $1,588.12 after the energy-saving software upgrade, <a href="https://www.blockworksresearch.com/assets/eth" target="_blank" rel="noreferrer noopener">Blockworks Research</a> data showed.



After 13 tense minutes, Ethereum developers and researchers confirmed that new blocks, or slots as they&#8217;re called on proof-of-stake Ethereum, were being produced and finalized.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">And we finalized! Happy merge all. This is a big moment for the Ethereum ecosystem. Everyone who helped make the merge happen should feel very proud today.&mdash; vitalik.eth (@VitalikButerin) <a href="https://twitter.com/VitalikButerin/status/1570306185391378434?ref_src=twsrc%5Etfw">September 15, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Over 40,000 live viewers tuned into the Ethereum Foundation&#8217;s livestream at the time of the event.



&#8220;As far as I&#8217;m aware, as far as I can tell from this stream everything was absolutely optimal, so that&#8217;s just great!&#8221; said the host of the celebration event, known as <a href="https://twitter.com/superphiz" target="_blank" rel="noreferrer noopener">Superphiz</a> from the Eth Stakers community group.



Perhaps the most anticipated event in the crypto world, the Merge has been one of the most difficult engineering feats undertaken by the industry, according to analytics firm BitOoda.



“It represents switching the underlying consensus engine of the blockchain while Ethereum continues to run and support the $100 billion+ DeFi, NFT and app economy without a hiccup,” Vivek Raman, BitOoda’s head of PoS said.



Its upgrade also aims to inadvertently silence critics of the industry’s energy consumption, which has received some of the blame for contributing to climate change.



The Ethereum Foundation <a href="https://ethereum.org/en/energy-consumption/">estimates</a> that the merge to PoS dramatically reduces the blockchain’s power consumption by 99.95%.&nbsp;



“So many people think that all blockchain projects are terrible for our climate by design,”&nbsp; Lia Holland, campaigns and communications director at non-profit advocacy group Fight for the Future said in a <a href="https://www.fightforthefuture.org/news/2022-09-14-statements-on-ethereum-merge-from-fight-greenpeace-creative-commons" target="_blank" rel="noreferrer noopener">statement</a>.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The Ethereum Merge shows real action from one of the largest chains to reduce its energy usage to 1/1000th of its former consumption.”</blockquote>



Enabling PoS will also drop new supply issuance of ETH <a href="https://ethereum.org/en/upgrades/merge/issuance/" target="_blank" rel="noreferrer noopener">by 90%</a>, and some proponents claim the impact is equal to three Bitcoin halving events. This means that the number of ether mined per day will reduce from 13,000 to about 1,600 per day.



Previously, a single transaction on Ethereum required enough energy to power an average US household for an <a href="https://digiconomist.net/ethereum-energy-consumption/#:~:text=205.85%20kWh,U.S.%20household%20over%206.96%20days." target="_blank" rel="noreferrer noopener">entire week</a>. Post-merge, that inches closer to just boiling a kettle, according to Juunu Salovaara, head of platform development at carbon credits crypto firm Likvidi.



“In terms of energy consumption, it will now sit alongside other protocols that are considered sustainable, such as Tezos, Solana and Algorand,” he said. “Given it’s still the second biggest blockchain in the world by a big margin, it presents an opportunity for sustainable blockchain projects looking for a home.”



<h3 class="wp-block-heading">Wen scalability?</h3>



And the biggest misconception about the Merge is that it will lower gas fees. “This is not true,” said Steven Walbroehl, Co-Founder &amp; CTO of Halborn. “It is a change of consensus mechanism, not an expansion of network capacity, that would result in lower gas fees.”



Alex Connolly, chief technology officer of NFT marketplace and Ethereum layer-2 scaling solution Immutable X agrees.



“Currently, the primary scalability bottleneck on Ethereum’s total transaction processing is the cost of data availability for rollups,” Connolly said in a <a href="https://www.immutable.com/blog/deep-dive-immutable-the-merge" target="_blank" rel="noreferrer noopener">blog post</a> Monday. “The near-term (2023) scalability updates are mostly mechanisms to reduce this cost.”



Those include a proposal to reduce the cost of data through the storage of data blobs — a data type that holds binary data&nbsp; — on beacon nodes for a short period of time.



The other would be to reduce the cost of data by allowing nodes to store only a subset of data via sharding, Connolly said. Sharding for Ethereum refers to the process of spreading the network’s load and breaking up the data across 64 separate shards.



But a definitive time on when that may actually come about is anyone’s guess given Ethereum’s slow and steady approach to development.



<h3 class="wp-block-heading">A long time coming</h3>



Ethereum first marked its intention to switch to PoS soon after its inception in 2015.



The transition has been marked by constant delays which, at the time, were touted as affording the team more time to prepare, much to the chagrin of the network’s impatient userbase.



It also gave Ethereum founder Vitalik Buterin enough time to compile various writings through his learnings in those years. Those will be published in a <a href="https://twitter.com/VitalikButerin/status/1564804705997361153" target="_blank" rel="noreferrer noopener">book</a> later this month.&nbsp;



The Beacon Chain, the core mechanism of the new network, finally launched in December 2020. That was one of the first milestones leading up to the event. Since then, Ethereum has been running both a PoS chain (Beacon Chain) and a proof-of-work (PoW) change.



<a href="https://cms.blockworks.co/ethereum-steps-closer-to-pos-as-goerli-testnet-merge-goes-live/" target="_blank" rel="noreferrer noopener">Goerli</a> — Ethereum’s third and final testnet — was one of the last hurdles for the chain to jump through before its final transition to PoS, doing so at the start of last month.



The completion of the Merge not only signifies the integration of both chains, but is a major symbolic win for those that have contributed to its codebase over the years.&nbsp;



Because the Beacon Chain has been running for almost two years — there have been mainnet shadow forks and 3 live testnet merges — the duration and frequency of the testing greatly increased the likelihood of success, Mark Connors, head of research at 3iQ Digital Assets, told Blockworks.&nbsp;



<h3 class="wp-block-heading">What are the risks?</h3>



Some major risks to the Merge included any unforeseen technical problems or a material change in gas fees. And while those that have played an important part in the network’s stability as a PoW concept, some are less accepting of the change.



The Controversial Ethereum PoW fork (ETHW), expected to formally launch <a href="https://cms.blockworks.co/proof-of-work-ethereum-fork-pow-rally-miners-with-1-hour-countdown/" target="_blank" rel="noreferrer noopener">within 24 hours</a> of the Merge, is one such concept challenging the transition to PoS which threatens to put miners out of business.



Still, most of the industry intends to move ahead with minor issues able to be easily remedied by developers post-Merge, analysts say.



“The Ethereum foundation’s <a href="https://blog.ethereum.org/2022/08/24/mainnet-merge-announcement" target="_blank" rel="noreferrer noopener">$1 million reward</a> for programmers that found bugs is one example of the amount of focus and energy on nailing this effort,” Connors said.



A great deal has now fundamentally changed for ETH token holders and the Ethereum network. Debate around whether <a href="https://cms.blockworks.co/the-flippening-will-ether-flip-bitcoin-in-the-next-year/" target="_blank" rel="noreferrer noopener">Ethereum could flippen Bitcoin</a> will continue in the months after the Merge. For now, that remains to be seen. Find more Blockworks articles covering the Ethereum Merge <a href="https://cms.blockworks.co/tag/ethereum-merge/" target="_blank" rel="noreferrer noopener">here</a>.



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crypto mining

Ethereum Switches to Proof-of-stake After 7 Years of Work

Bessie Liu

<div id="highlights-block_631a5a2d08a13" class="highlights">
 <ul>
 <li>White House researchers believe global electricity usage of cryptoasset mining has exceeded the annual electricity usage of Argentina and Australia</li>
 <li>Responsible development of digital assets must consider the environment, a government report emphasized</li>
 </ul>
 
</div>



The White House has released a <a href="https://www.whitehouse.gov/wp-content/uploads/2022/09/09-2022-Crypto-Assets-and-Climate-Report.pdf" target="_blank" rel="noreferrer noopener">report</a> urging the Environmental Protection Agency (EPA) and the Department of Energy (DOE) to take measurable actions to control energy usage in proof-of-work crypto mining.



This release is among the first responses to US President Joe Biden’s <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/" target="_blank" rel="noreferrer noopener">executive order</a> on cryptocurrencies. It emphasizes that cryptoasset technologies use a significant amount of electricity, contributing greatly to “[greenhouse gas] emissions, additional pollution, noise and other local impacts.”&nbsp;



According to the authors, the estimated global electricity usage of cryptoasset mining as of August 2022 exceeds the annual electricity usage of countries including Argentina and Australia, sitting roughly between 120 billion and 240 billion kilowatt-hours per year.&nbsp;



High energy consumption will likely lead to disastrous consequences for daily Americans, the White House says, not only exacerbating “climate-driven weather extremes,” but also threatening the stability of electricity grids as it could “push up power prices for local consumers.”



Specifically, the report criticizes the proof-of-work (PoW) consensus mechanism — which currently represents more than 60% of the total cryptoasset market capitalization, stating that “given the electricity usage estimates, most discussions about crypto-asset electricity usage has focused on PoW applications, particularly Bitcoin.”



It reasons that responsible development of digital assets must include solutions to drastically reduce its energy consumption and suggests the “less energy-intensive consensus mechanism, called Proof of Stake (PoS), estimated to consume up to 0.28 billion kilowatt-hours per year in 2021, less than 0.001% of global electricity usage,” could be a viable alternative.&nbsp;&nbsp;



“There have been growing calls for PoW blockchains to adopt less energy-intensive consensus mechanisms,” the report said. “The most prominent reaction has been Ethereum’s promised launch of “Ethereum 2.0,” which uses a PoS consensus mechanism.”



Ethereum, the second largest blockchain by market capitalization, is expected to move to PoS in the <a href="https://cms.blockworks.co/ethereums-bellatrix-upgrade-goes-live/" target="_blank" rel="noreferrer noopener">next week</a>, making it <a href="https://blog.ethereum.org/2021/05/18/country-power-no-more" target="_blank" rel="noreferrer noopener">99.95%</a> more energy efficient.



While the White House didn&#8217;t directly propose an outright ban on PoW mining in the US, it did reference China&#8217;s ban as a boon to the environment and flagged the EU&#8217;s introduction of mandatory minimum sustainability standards for consensus mechanisms.



“In China, the incompatibility of large-scale Bitcoin mining with the country’s environmental goals has been cited as one of several reasons that the government banned crypto-asset transactions in 2021,” the report read.



Despite this, the White House showed support for exploring how crypto miners could use electricity generated from vented and flared methane at oil and gas wells and landfills.



“Cryptoasset mining operations that capture vented methane to produce electricity can yield positive results for the climate by converting the potent methane to CO2 during combustion,” the report said.



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White House Criticizes Proof-of-work Crypto Mining

Macauley Peterson

<div id="highlights-block_6308bd1b44346" class="highlights">
 <ul>
 <li>All testnets have been successfully merged</li>
 <li>Proof-of-work mining on Ethereum will soon be no more</li>
 </ul>
 
</div>



Ethereum’s Merge — years in the making as one of cryptocurrency’s most complicated endeavors yet — is moving ahead apace.



Like NASA’s Artemis 1 rocket <a href="https://www.kennedyspacecenter.com/launches-and-events/events-calendar/2022/august/rocket-launch-nasa-sls-artemis-i" target="_blank" rel="noreferrer noopener">on the launch pad</a> at Cape Canaveral, Florida ahead of a launch to orbit the moon, preparations for the Merge — slated for Thursday, Sept. 15 — are also in the final stages. 



The long-awaited transition from the blockchain’s founding proof-of-work transaction validating mechanism to proof-of-stake is now slated for Sept. 15. In the weeks leading up to the Merge, there’s been <a href="https://cms.blockworks.co/what-could-happen-to-the-ether-price-following-the-merge/">a notable uptick</a> in both ether spot trading volumes and derivatives bets, wagers hinging on its outcome, as big-money traders put substantial capital behind their predictions.&nbsp;&nbsp;



Ethereum has successfully Merged the <a href="https://cms.blockworks.co/ethereum-ropsten-testnet-successfully-merged-to-proof-of-stake/" target="_blank" rel="noreferrer noopener">Ropston</a> and <a href="https://cms.blockworks.co/ethereum-steps-closer-to-pos-as-goerli-testnet-merge-goes-live/" target="_blank" rel="noreferrer noopener">Goerli</a> testnets, as well as 11 “<a href="https://cms.blockworks.co/shadow-forks-and-testnets-the-ethereum-merge-approaches/" target="_blank" rel="noreferrer noopener">shadow forks</a>” — the latest of which occurred last week ahead of a meeting of the protocol’s core developers.



The final Merge-ready clients were <a href="https://blog.ethereum.org/2022/08/24/mainnet-merge-announcement" target="_blank" rel="noreferrer noopener">unveiled</a> Tuesday by the Ethereum Foundation’s <a href="https://blog.ethereum.org/2022/08/24/mainnet-merge-announcement/" target="_blank" rel="noreferrer noopener">mainnet Merge announcement</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">.<a href="https://twitter.com/ethereum?ref_src=twsrc%5Etfw">@Ethereum</a>’s transition to proof-of-stake is happening 🎉 Client releases are out &#8211; update your node! First part of The Merge, Bellatrix, happens on Sept 6. Full transition ETA: Sept 15. Mark your calendar 📆! <a href="https://t.co/X0DKUmcZHJ">https://t.co/X0DKUmcZHJ</a>&mdash; Tim Beiko | timbeiko.eth 🐼 (@TimBeiko) <a href="https://twitter.com/TimBeiko/status/1562418377582419968?ref_src=twsrc%5Etfw">August 24, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



An Ethereum client “verifies data against the protocol rules and keeps the network secure,” the Foundation <a href="https://ethereum.org/en/developers/docs/nodes-and-clients" target="_blank" rel="noreferrer noopener">said</a>.



The Merge requires updates to clients both on the Beacon Chain — the new proof-of-stake (PoS) consensus layer — and the execution layer, clients that currently run decentralized applications (dapps) on the blockchain’s existing proof-of-work (PoW) mainnet.



<h3 class="wp-block-heading">A snag in Geth</h3>



Unlike many blockchains, the Ethereum Community deliberately encouraged multiple independent developer teams to write client software.



Even so, on the execution layer, Geth — short for <a href="https://twitter.com/peter_szilagyi/status/1562372292612587520" target="_blank" rel="noreferrer noopener">Go Ethereum</a> — currently accounts for an overwhelming majority, <a href="https://ethernodes.org/" target="_blank" rel="noreferrer noopener">75%</a>, of all Ethereum nodes. The rationale behind promoting client diversity was on display as the Geth team uncovered <a href="https://twitter.com/peter_szilagyi/status/1561947614471507968" target="_blank" rel="noreferrer noopener">a critical bug</a> in what was supposed to be a Merge-ready release.



Ether declined nearly 3% in short order after news of the large security vulnerability spread Tuesday.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="698" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png" alt="Ether 10-minute chart from Aug. 23" class="wp-image-29402" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=377 377w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=383 383w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=321 321w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-18.46.20-1024x698.png?w=1232 1232w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Ether 10-minute chart from 5:10 to 6:10 UTC; Source: TradingView</figcaption></figure>



The software <a href="https://twitter.com/peter_szilagyi/status/1562369620740276224" target="_blank" rel="noreferrer noopener">was quickly patched</a> and should have no adverse effect on the Merge. The Ethereum Foundation has turbo-charged <a href="https://ethereum.org/en/bug-bounty/" target="_blank" rel="noreferrer noopener">a bug bounty program</a> through Sept. 8, earmarking up to $1 million for developers who uncover critical Merge-related bugs.



<h3 class="wp-block-heading">What happens next?</h3>



The Beacon Chain is <a href="https://twitter.com/JBSchweitzer/status/1562416320611852290" target="_blank" rel="noreferrer noopener">scheduled to undergo</a> an upgrade called Bellatrix on Sept. 6. That will activate the Merge transition on the PoS chain.



The PoW mainnet doesn’t have a fixed time to execute the Merge, but instead uses a scary sounding technical term — Terminal Total Difficulty — to determine when exactly the magic happens. That figure is now set, and it puts <a href="https://bordel.wtf/" target="_blank" rel="noreferrer noopener">the best estimate</a> for the consummation of these parallel chains — known as the Paris upgrade — at shortly after 1:00 am ET on Sept. 15.



The precise time will fluctuate based on the mining hashrate between now and then. But, so far, the impending end of PoW mining on Ethereum hasn’t <a href="https://ycharts.com/indicators/ethereum_network_hash_rate">put much of a dent</a> on its hashrate, which has remained stable between 900 and 950 terahashes per second (Th/s).



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="270" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png" alt="Ethereum mining hashrate" class="wp-image-29403" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Screenshot-2022-08-25-at-19.09.57-1024x270.png?w=1848 1848w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Ethereum mining hashrate, past 30 days in terahashes per second (Th/s); Source: <a href="https://ycharts.com/indicators/ethereum_network_hash_rate">ycharts</a></figcaption></figure>



Miners have a financial incentive to continue processing Ethereum transactions until the very last second before the Merge — so, while some winding down of mining is expected, it’s unlikely to significantly delay things.



If Artemis 1 encounters snags, it will have <a href="https://www.space.com/nasa-artemis-1-sls-moon-rocket-launch-webcasts">two further chances</a>, on Sept. 2 and Sept. 5, to pull it all off. Since this maiden voyage is uncrewed, if it also goes wrong, the only casualty is money.



Ethereum’s design gives developers more leeway to delay the Merge, if needed. A market cap of $200 billion is riding on a smooth launch.



If recent history is any guide, though, the clock will inexorably tick down toward Ethereum’s <a href="https://cms.blockworks.co/seven-crypto-miners-show-disturbing-energy-use-lawmakers-say/" target="_blank" rel="noreferrer noopener">politically palatable</a> energy-efficient future. A crypto moon mission for which <a href="https://cms.blockworks.co/crypto-markets-bet-big-on-whats-next-for-ethereum-miners/" target="_blank" rel="noreferrer noopener">everyone but PoW miners</a> are on board.



Update: Aug. 29 at 8:45 am ET: The Artemis I rocket launch <a href="https://twitter.com/CNET/status/1564232050684608512" target="_blank" rel="noreferrer noopener">has been scrubbed</a> for today due to a technical glitch. NASA may be able to reschedule for Sept. 2, pending evaluation of current data and the severity of the problem.



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bug bounty

Ethereum Merge Countdown at T-20 Days

<div id="highlights-block_62f189808dde2" class="highlights">
 <ul>
 <li>All EVM-compatible layer-1 networks such as Avalanche’s C-chain and Polygon’s PoS chain forked the open-source Ethereum client software, but not the transaction history</li>
 <li>Miners and a few exchanges stand to profit from the chaos expected to ensue</li>
 </ul>
 
</div>



Miners on the Ethereum network can’t stop <a href="https://cms.blockworks.co/tag/the-merge/" target="_blank" rel="noreferrer noopener">The Merge</a>.



While they can fork, or clone, and maintain a version of the network — an alternate universe of sorts where the proof-of-stake transition never occurs — Ethereum experts caution this endeavor will be little more than a dangerous cash-grab targeting unsuspecting retail traders.



Still, rampant speculation over the post-Merge prospects for such an Ethereum fork has led some exchanges preemptively to create markets for “ETHW,” a currency that doesn’t yet exist.



Under <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/" target="_blank" rel="noreferrer noopener">proof-of-work</a> (PoW), miners help secure the Ethereum mainnet and are rewarded with new ether issuance. But Ethereum’s social consensus is democratically expressed through the actions of other stakeholders, and the move to proof-of-stake will put miners out of business.



So, it’s no surprise that some have banded together to propose <a href="https://ethereumpow.org/" target="_blank" rel="noreferrer noopener">an alternative</a> which would maintain both proof-of-work consensus and the full Ethereum state — its transaction history and all records of assets. But will anyone use it?



“The fact that people think an ETH PoW fork will be anything more than a retail trap means we haven’t learned anything from nearly a decade of social consensus hard forks,” <a href="https://twitter.com/pseudotheos/status/1555986152766574593" target="_blank" rel="noreferrer noopener">according to</a> Pseudotheos, a pseudonymous <a href="https://variant.fund/team/" target="_blank" rel="noreferrer noopener">Investment Research Partner</a> at venture capital firm Variant.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Nearly every smart contract on the PoW fork will be broken in some capacity,” he said.</blockquote>



Ethereum co-founder Vitalik Buterin <a href="https://cms.blockworks.co/stablecoins-will-only-have-value-on-pos-ethereum-post-merge/" target="_blank" rel="noreferrer noopener">has also denounced</a> ETH PoW forks as ploys for miners and exchanges to make a quick buck.



<h3 class="wp-block-heading">Why another fork?</h3>



Ethereum has gone through numerous hard forks before. The most famous split followed a contentious decision in the network&#8217;s early days to thwart <a href="https://www.forbes.com/sites/laurashin/2022/02/22/exclusive-austrian-programmer-and-ex-crypto-ceo-likely-stole-11-billion-of-ether/" target="_blank" rel="noreferrer noopener">The DAO hacker</a>, a move which spawned Ethereum Classic (ETC).&nbsp;



ETC is still valued at a market cap of about $5.3 billion, <a href="https://cms.blockworks.co/prices/" target="_blank" rel="noreferrer noopener">according to</a> data compiled by Blockworks, despite having <a href="https://defillama.com/chain/EthereumClassic" target="_blank" rel="noreferrer noopener">few dapps</a> and a small fraction of Ethereum’s development activity.



Ethereum Classic’s native token has actually been surging as The Merge approaches, buoyed by the idea that many miners may dedicate their computing power to the network once it’s no longer needed on Ethereum itself, <a href="https://cms.blockworks.co/crypto-markets-bet-big-on-whats-next-for-ethereum-miners/" target="_blank" rel="noreferrer noopener">Blockworks reported</a>.



Yet, unlike all previous contentious forks, this time around there are billions of dollars in DeFi activity on Ethereum, including stablecoins <a href="https://cms.blockworks.co/stablecoins-will-only-have-value-on-pos-ethereum-post-merge/" target="_blank" rel="noreferrer noopener">which will be worthless</a> on a forked chain.



<h3 class="wp-block-heading">Out with the oracles, in with the replay attacks</h3>



And it’s not just stablecoins; much of DeFi (decentralized finance) relies on price oracles to function and, like the stablecoin issuers, major oracle network provider Chainlink has similarly signaled a lack of support for any proof-of-work fork Ethereum miners try to launch.



“Users should be aware that forked versions of the Ethereum blockchain, including PoW forks, will not be supported by the Chainlink protocol,” <a href="https://docs.chain.link/docs/ethereum-proof-of-stake-merge/" target="_blank" rel="noreferrer noopener">according to Chainlink documentation</a> updated on Saturday.



The idea that a fork with proof-of-work consensus <a href="https://cms.blockworks.co/ethereum-split-is-possible-but-many-remain-optimistic-about-the-merge/" target="_blank" rel="noreferrer noopener">could be useful</a> if The Merge fails is also wrong, according to Hasu, the pseudonymous Flashbots strategy lead and research collaborator at Paradigm.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“If anything goes wrong with the merge, it just gets delayed until the problems are fixed and then the merge happens a few weeks later,” <a href="https://twitter.com/hasufl/status/1555902241575518208" target="_blank" rel="noreferrer noopener">he tweeted</a> on Saturday.</blockquote>



There may even be significant risks interacting with the forked chain, Pete Kim, head of engineering at Coinbase Wallet, wrote.



That’s because, “so far there is no plan to change the chain ID for replay protection,” <a href="https://twitter.com/petejkim/status/1555991794483077123" target="_blank" rel="noreferrer noopener">he tweeted Saturday</a>, adding, “that means anything you do on one chain can be replayed by anyone on the other resulting in loss of funds.”



So, while a form may be inevitable, there’s little reason for users to pay any attention.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">8. crypto is full of bad projects that only exist to dump on retail, but that doesn&#39;t make it ok to support them. the fact that ghost chains like etc still exist does not vindicate that point.&mdash; Hasu⚡️🤖 (@hasufl) <a href="https://twitter.com/hasufl/status/1555902248026341376?ref_src=twsrc%5Etfw">August 6, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h3 class="wp-block-heading">Exchanges bet on trader demand</h3>



None of this has stopped crypto exchanges Poloniex and BitMex from moving ahead with futures markets on a potential “EthPoW” network token.



The <a href="https://support.poloniex.com/hc/en-us/articles/8016650426775" target="_blank" rel="noreferrer noopener">Justin Sun</a>-backed Poloniex exchange <a href="https://support.poloniex.com/hc/en-us/articles/8016650426775" target="_blank" rel="noreferrer noopener">has issued</a> an “ETHW” token on the Sun-controlled Tron blockchain. As of Monday at 1:30 pm ET, the token is changing hands for about $118, <a href="https://www.coingecko.com/en/coins/ethereum-pow-on-poloniex" target="_blank" rel="noreferrer noopener">according to Coingecko</a>, or about 6.6% the value of one ether.



BitMex <a href="https://blog.bitmex.com/ethpow-coin-listing/" target="_blank" rel="noreferrer noopener">announced on Monday</a> that it would launch ​​a Tether-margined ETHPoW futures contract beginning Tuesday, allowing traders to speculate on the price of a future forked ETH using USDT.



Another crypto exchange, Huobi, has <a href="https://www.huobi.com/support/en-us/detail/94914028834041" target="_blank" rel="noreferrer noopener">highlighted guidelines</a> that a fork would need to follow to be considered for listing. Notably, the exchange requires that replay attacks be prevented.



Blockworks reached out to Huobi and Poloniex for comment but has not heard back by press time.



<h3 class="wp-block-heading">Staked ether once again being sold</h3>



In another sign of trader-speculation, the value of Lido staked ether (stETH), relative to ETH has been falling in recent days, <a href="https://dune.com/dataalways/stETH-De-Peg" target="_blank" rel="noreferrer noopener">data from Dune Analytics</a> shows.&nbsp;



That could be due to the fact that a forked stETH token will be worthless, while the proof-of-work forked ETH might still be exchangeable for something of lasting value. Huobi and Poloniex users can deposit ether on either exchange to automatically receive the forked token post-Merge.



Each stETH is currently worth about 0.96 ETH, its lowest point in almost a month. If The Merge proceeds smoothly, every stETH will eventually become withdrawable for 1 ETH sometime in 2023, once a further planned fork enables the withdrawal of staked ETH.



But there is no such thing as staked ether on a hypothetical proof-of-work fork, so its value will be zero.&nbsp;



Ethereum’s state includes all the tokens and protocols which inhabit the ecosystem but, critically, it’s the social consensus around it provides the network with value — and that can’t be copied.



That’s one reason for Ethereum experts like Hasu to wield such scorn on the whole prospect of a fork.



“Although most alt chains today are forks of ethereum, none has forked ethereum state. Not because they didn&#8217;t think of it, but because it&#8217;s a completely stupid idea,” <a href="https://twitter.com/hasufl/status/1555902249796358144" target="_blank" rel="noreferrer noopener">he said</a>.



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blockchain

Ethereum Proof-of-work Fork Proposal is “a Retail Trap,” Researchers Say

<div id="highlights-block_62b5f9aa6243a" class="highlights">
 <ul>
 <li>As the demand for Ethereum grew, the blockchain&#8217;s core architecture started to show signs of congestion and high gas fees</li>
 <li>If the Merge is successful, Ethereum will transition to a more environmentally friendly and efficient protocol</li>
 </ul>
 
</div>



<a href="https://cms.blockworks.co/ethereum-activates-grey-glacier-hard-fork-merge-likely-in-september/">Recent changes </a>to the &#8216;difficulty bomb&#8217; have pushed back the estimated date of the Merge to September 2022. &#8211; update: July 6, 2022. 



&#8220;If Ethereum fails to scale, then Ethereum definitely failed.&#8221; — Vitalik Buterin



Vitalik&#8217;s vision for Ethereum is clear: become a global decentralized programmable blockchain — that people use. However, to realize this vision, the network must solve the &#8220;blockchain trilemma&#8221; — scalability, decentralization and security. The Ethereum Merge aims to pave the way to scalability by laying an energy efficient proof-of-stake protocol as a decentralized and secure foundation.



In this article, we will take you through the mechanics of the Ethereum Merge, its motives, and why a successful implementation has a cascading impact on the entire industry.&nbsp;



Let&#8217;s get started with what the Merge is.



<h3 class="wp-block-heading">What is the Ethereum Merge?</h3>



Previously referred to as ETH 2.0, the Ethereum Merge is a multi-year event designed to upgrade the blockchain from a proof-of-work to a proof-of-stake consensus mechanism. If the Merge is successful, Ethereum will transition to a more environmentally friendly and efficient protocol. But to better understand the motives of the Merge, we need to revisit the story of blockchain.&nbsp;



First-generation blockchain technology such as bitcoin began with a simple objective: transact digital value without banks. Through the innovation of smart contracts, Ethereum expanded the power of decentralized consensus to enable a wide array of applications in areas such as healthcare, gaming and Web3. Through this shift, the vision of blockchain grew from a financial operating system to a societal one.



However, as the demand for Ethereum grew, Ethereum&#8217;s core architecture started to show signs of congestion — sometimes causing gas fees of $500 per transaction and consuming as much energy as a small country. These cost limitations prevent the adoption needed for it to provide decentralized solutions at a societal scale.&nbsp;



<h3 class="wp-block-heading">How does proof-of-stake help Ethereum?</h3>



Proof-of-stake (PoS) does not immediately solve high gas fees, but it helps Ethereum reduce its energy usage to that of a small town. It is the critical next step toward global scalability. And here&#8217;s how.



PoS, like its predecessor proof-of-work (PoW), is a consensus mechanism — in other words, it&#8217;s how the network agrees on what&#8217;s true. With Ethereum, “truth” can be anything from a simple transaction to complex clauses of a smart contract.&nbsp;



For all participants in a network to behave appropriately, the mechanism needs rules and rewards, just like a game. And to prevent cheating, the mechanism must require participants to stake something of value.&nbsp;



For PoW, that requirement is expensive energy and equipment. In contrast, PoS requires participants to stake temporarily locked funds in the mechanism. Removing the energy requirement allows Ethereum to scale to global proportions.&nbsp;



To better understand the pros and cons of both protocols, read our complete guide on <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/">proof-of-work vs. proof-of-stake.&nbsp;</a>



<h3 class="wp-block-heading">The Beacon Chain: Phase 0 of the ETH Merge&nbsp;</h3>



Switching to PoS isn&#8217;t as easy as pressing a button. The Ethereum development team has been working on the transition since 2016 and has called off the switch multiple times. An enormous Web3 ecosystem of business decentralized apps, decentralized exchanges and NFT (non-fungible token) marketplaces depend on an error-free transition.



So on <a href="https://ethereum.org/en/upgrades/beacon-chain/" target="_blank" rel="noreferrer noopener">Dec. 1, 2020</a>, the team launched the Beacon Chain — phase 0 of a slow and cautious merge. As the name suggests, the Beacon Chain is a parallel PoS side chain to Ethereum&#8217;s existing PoW blockchain — often referred to as the Ethereum mainnet. It does not impact users or apps on the main chain or support smart contracts but rather serves as a record keeper of all transactions. Think of the new chain as a relay runner. It is waiting for its turn to take the baton but needs to be running at the same speed before the official handoff.



This side chain uses a one-way bridge smart contract. It enables users to stake or delegate their ETH to a Beacon Chain validator address but prevents them from withdrawing funds or rewards. Users will likely be able to withdraw after the two post-merge updates Shanghai and Capella, which could happen by the end of this year.



To learn more about the mechanics of staking, check out our <a href="https://cms.blockworks.co/the-investors-guide-to-staking/">complete guide</a>.



<h3 class="wp-block-heading">Why validator and client diversity is essential&nbsp;</h3>



With over <a href="https://beaconscan.com/" target="_blank" rel="noreferrer noopener">9 million ETH staked</a> on the Beacon Chain, a successful merge depends on the blockchain having a diverse set of validators and clients. Think of validators as game participants and clients as their operating system. If each player uses the same operating system and encounters a bug in one of its updates, the entire game shuts down. And if one player gets too powerful, it can hijack the game and alter the reward amounts in their favor.&nbsp;&nbsp;



In the proof-of-stake game, any player can use various cheating tactics if they own a significant percentage of the stake (50% pre-merge, 66% post merge). So say there are only two clients and nine validators. Six validators are on client A, and three are on client B. If client B goes down, the network is at greater risk of a malicious attack since it is easier for a single validator to increase their total share of the stake. If client A were to go down in a post merge scenario, network consensus would be impossible — resulting in something called an <a href="https://eth2book.info/altair/part2/incentives/inactivity" target="_blank" rel="noreferrer noopener">inactivity leak</a>.



Validators can reduce this risk by running minority clients. <a href="https://www.figment.io/">Figment</a>, an institutional staking service, emphasized this point in a recent <a href="https://www.figment.io/insider" target="_blank" rel="noreferrer noopener">insider report.</a> They outlined some of the current vulnerabilities approaching the Merge and stated.



&#8220;Client diversity is the responsibility of all stakeholders — not just the larger ones. But in the short to medium term, convincing larger entities to diversify their clients will have the greatest impact.&#8221;



But client diversity doesn&#8217;t only benefit the network. Figment explains that should a validator be running a majority client with a bug that goes offline, that validator along with all other validators running that client will face elevated downtime penalties (i.e., inactivity leak). By running a minority client, validators avoid these heightened downtime penalties.



<h3 class="wp-block-heading">Merging the Beacon Chain and mainnet via testnets</h3>



Ethereum testnets are blockchains that simulate the Ethereum mainnet but have lower mining complexity and testnet ETH fees. Once there are enough successful testnet merges, the core team will schedule the merge of Ethereum mainnet and the Beacon Chain.&nbsp;



However, this procedure doesn’t turn off proof-of-work with a flip of a switch. <a href="https://ethereum.org/en/upgrades/merge/" target="_blank" rel="noreferrer noopener">Ethereum.org</a> states that the Merge will effectively make the Beacon Chain its own proof-of-stake shard. This alone leaves a theoretical window where miners could continue a proof-of-work fork on Eth1 client(s).



To address this, the core team created a solution to freeze PoW. They call it the difficulty bomb, and it is the most contentious element of the Merge.



<h3 class="wp-block-heading">What is the difficulty bomb, and how will it freeze proof-of-work on Ethereum?</h3>



The difficulty bomb is code developed in 2016 that rapidly increases the difficulty to mine a block on Ethereum, eventually making it economically infeasible to mine ETH using the PoW protocol. If the developer community times it just right, it will incentivize miners to abandon PoW.



The only problem is that the community can&#8217;t agree on the timing. Strong proof-of-stake advocates believe they should deploy the difficulty bomb early to expedite the Merge, and others think that will push the developer team too fast, increasing the chance of mistakes. Core developers have delayed the difficulty five times, citing PoS and mainnet merge concerns as the main reason.&nbsp;



<h3 class="wp-block-heading">When will the Merge happen?</h3>



After the <a href="https://www.youtube.com/watch?v=2OfRuKSPjjw" target="_blank" rel="noreferrer noopener">merge</a> of Ropsten and Ropsten Beacon chain on June 8 2022, the mainnet Merge date seems to be inching closer. However, the Ethereum foundation hasn&#8217;t committed to any definite timelines. Based on current estimates, <a href="https://www.figment.io/resources/ethereum-current-status-of-the-merge" target="_blank" rel="noreferrer noopener">the Merge is likely to happen</a> sometime in Q3 of 2022.&nbsp;



<h3 class="wp-block-heading">What will happen after the Merge?</h3>



If transaction volumes continue at current rates, ETH is expected to offer a better yield to its stakers. According to <a href="https://coinshares.com/research/how-the-merge-could-impact-yields" target="_blank" rel="noreferrer noopener">Coinshares</a>, the base APY number seems to fluctuate between 8% and 12%.



Additionally, the functionality to withdraw staked ETH is not scheduled to go live along with the Merge. Instead, developers will focus on features such as these in the &#8220;post-merge&#8221; period, which does not have a definite timeline.



<h3 class="wp-block-heading">How Ethereum will use sharding to scale&nbsp;</h3>



After the post-Merge period, the development team will start on the next phase of Ethereum&#8217;s scheduled transition — sharding. Even though the Merge is a positive development for the entire network, transaction fees still deter network adoption. Sharding is the second step to this solution.



As <a href="https://vitalik.ca/general/2021/05/23/scaling.html" target="_blank" rel="noreferrer noopener">Vitalik outlines</a>, sharding allows blockchains to scale vertically. Instead of transactions queuing up on a single blockchain and causing network congestion, the consensus layer will manage 64 blockchains, otherwise known as shards. In time, the main Ethereum blockchain we use today will be one of the 64 shards.



<h3 class="wp-block-heading">Why is the Ethereum merge so important?</h3>



With newer blockchains such as Solana and Avalanche trying to siphon Ethereum&#8217;s market share, Ethereum&#8217;s scalability problem is an existential risk. Although Ethereum currently has a network effect and a vast community on its side, it needs to address these problems to retain them.&nbsp;



The Merge is estimated to reduce energy consumption by 99.5% alongside a 90% drop in issuance of the ETH tokens. Thus, many expect the demand for the ETH token to rise, which is good news for ETH investors. Additionally, PoW validators would need to switch from investing in expensive GPUs to holding an Ethereum stake, adding even more demand.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



This content is sponsored by <a href="https://www.figment.io" target="_blank" rel="noreferrer noopener">Figment</a>.



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Ethereum

The Investor’s Guide to the Ethereum Merge

<div id="highlights-block_62979dc3711af" class="highlights">
 <ul>
 <li>Ethereum developers successfully completed a half dozen “shadow forks” of the mainnet and are rigorously testing The Merge</li>
 <li>No date as been set yet, but developers are eyeing September as the most likely </li>
 </ul>
 
</div>



For observers of Ethereum and investors in ether, the perennial question has been — for years — “Wen Merge?”



The launch of the proof-of-stake Beacon Chain on Ethereum’s Ropsten testnet on May 30 represents a major milestone in a transition that has been in the works for about seven years, almost from the very beginnings of the world’s second largest cryptocurrency.&nbsp;



Ethereum’s Beacon Chain has, since December 2020, operated in parallel to the mainnet — the chain on which all Ethereum dApps currently run. Ethereum Mainnet is still secured by <a href="https://cms.blockworks.co/?s=proof-of-work" target="_blank" rel="noreferrer noopener">proof-of-work</a>, like Bitcoin, but The Merge will finally unite these two chains, permanently ditching the energy-guzzling miners and slashing Ethereum’s energy consumption <a href="https://blog.ethereum.org/2021/05/18/country-power-no-more/" target="_blank" rel="noreferrer noopener">by a projected 99.95%</a>.



Officially that should happen in “<a href="https://ethereum.org/en/upgrades/merge/" target="_blank" rel="noreferrer noopener">Q3/Q4 2022</a>,” and a firmer date has yet to be put on the table. On May 20, Ethereum co-founder Vitalik Buterin <a href="https://youtu.be/8l67wJ3Wcbc?t=3693" target="_blank" rel="noreferrer noopener">told attendees</a> at the ETH Shanghai Web3 Developer Summer that it could be as soon as August “if there are no problems.”



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“There’s always a risk of delays, and so September is possible, and October is maybe possible as well, but The Merge is, at this point, looking like it’s very close to happening,” Buterin said.</blockquote>



Ethereum core developers, coordinated by Tim Beiko of the Ethereum Foundation, have been quietly simulating The Merge process, like actors rehearsing and perfecting a play. And with each passing step in a rigorous chain of testing, the actual date comes more into focus.



That testing includes initiating a series of six “shadow forks” since April, the last of which occurred on Tuesday, and the launch of the Beacon Chain on the longest-running Ethereum testnet, Ropsten.



A shadow fork is when a new developer network is created by forking a live network using a small number of nodes. Ropsten — named, by convention, after a metro station in Stockholm, Sweden — is the closest to the production environment of Ethereum of all its testnets, and has operated continuously since 2016.



“Even before deploying to testnets, devs are continuously testing against past data and fixing all potential issues,” Kosala Hemachandra, founder and CEO of MEW (MyEtherWallet), told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“These devs are the best in the field, and I am confident that they will make sure [it] will deploy and function as expected.”</blockquote>



Now is a key time for the testing process. On Thursday, an upgrade to the testnet version of the Beacon Chain, known as Bellatrix, will prepare it for The Merge simulation. A precise time for that to occur will become known on Thursday, and The Merge on Ropsten is expected to take place on June 8. After that it will be a proof-of-stake chain, will have served its purpose, and is slated to be deprecated.



“This is the first dress rehearsal,” Beiko <a href="https://twitter.com/TimBeiko/status/1531369111938138112" target="_blank" rel="noreferrer noopener">wrote on Twitter</a>, complete with a dancer emoji. “PoW on testnets is hard to estimate, so keep an eye out 👀.”



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Shadow Forks and Testnets: The Ethereum Merge Approaches

Luke Conway

Crypto culture has become increasingly tribalistic over the last several years. Fans of one crypto often take to social media to argue with rival token holders. A common insult used during these debates is to say another crypto is centralized.



A repeated misconception among crypto investors is that blockchains are decentralized by default. But what is decentralization, and how do crypto investors determine if a coin is or isn’t decentralized?&nbsp;



<h3 class="wp-block-heading">Quick facts:</h3>



<ul class="wp-block-list"><li>The decentralization of blockchain platforms is a spectrum, with some more decentralized than others.</li><li>The decentralization of proof-of-work blockchains can be measured by the size of their cumulative hash rate and the number of entities it is divided amongst.</li><li>The decentralization of proof-of-stake blockchains can be measured by the percentage of a coins circulating supply that is staked to the network and how many entities that stake is divided amongst.</li><li>Other factors, such as governance and development control, network accessibility and figurehead influence, should be considered when determining the decentralization of a blockchain platform.</li></ul>



<h2 class="wp-block-heading">What is decentralization?</h2>



A good or service is decentralized if it is run by a collective of participants using majority rule. In the case of bitcoin, its attributes, such as the total supply of bitcoins, are determined by the majority of its network participants.



Understanding decentralization and its importance is imperative to understanding cryptocurrency in general and why it was created in the first place.



<h2 class="wp-block-heading">Why is decentralization important?</h2>



Centralized systems, or systems where one entity has full control, often fall victim to conflicts of interest. These systems also have one single point of failure, making them more susceptible to attacks.



Decentralized systems have no single point of failure and cannot enact changes unless the majority of participating parties agree, significantly decreasing the likelihood of a successful attack and the possibility of corruption.



Outside of the internet, which is partially centralized due to internet service providers, bitcoin is the first real example of a system with no central authority.



<h3 class="wp-block-heading">Manipulation of money and inequality</h3>



Bitcoin was born out of the 2008 financial crisis, a time when banks were bailed out and the Federal Reserve used quantitative easing to slow the recession.



Bitcoiners believed the Fed’s strategy was entirely unfair to citizens who had no say whether banks should be given taxpayer money for failed investments. They also questioned whether one entity, the Fed, should have the autonomy to expand or contract the money supply.



Inflation from quantitative easing has drastically lowered the purchasing power of the dollar over time, damaging those living from paycheck to paycheck with stagnant wages. This contributes to inequality, as those who can afford to invest in other assets can compound wealth while those who cannot continue to lose purchasing power.



Bitcoiners also feel the existing monetary systems of the world significantly increase the disenfranchisement of certain populations, particularly those in countries where access to financial products is uncommon or nonexistent.



These products typically require two or more forms of government-issued identification, verifiable addresses, credit and other conditions to which many people do not have access. As a result, they often have no alternative to cash-based economies where theft and violence are prominent.



While some argue that cryptocurrency allows criminals to slip by more easily, others say it can increase financial inclusivity, resulting in a net positive, regardless of criminal activity.



<h3 class="wp-block-heading">“Centralized shitcoin,” the ultimate crypto diss&nbsp;</h3>



The idea behind bitcoin was to create a global monetary network, run by and for the people, with no restrictions. Many crypto investors claim that cryptocurrencies with little decentralization are more akin to a random currency minted by a company, and that cryptos that forego decentralization are completely missing the initial point.&nbsp;



For that reason, crypto enthusiasts often prize decentralization and shame coins that show signs of centralization.



<h2 class="wp-block-heading">Measuring decentralization</h2>



The decentralization of a crypto network can be hard to measure, especially when comparing networks with different designs. Fortunately, blockchains share enough traits to assess a network’s decentralization, but investors should understand that decentralization is a spectrum, and most popular blockchains are not entirely centralized or decentralized.



Measuring the decentralization of the <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/" target="_blank" rel="noreferrer noopener">two types</a> of blockchains — proof-of-work and proof-of-stake — involves different factors.



<h3 class="wp-block-heading">Proof-of-work</h3>



Proof-of-work blockchains, such as Bitcoin, are made up of users and nodes — both non-mining and mining. The decentralization and security of these networks are largely dependent on how high their hash rate is and how many entities the hash rate is distributed among. The hash rate of a proof-of-work blockchain represents the cumulative processing power miners provide the network. The higher the hash rate, the harder it is to disrupt.



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*Statistics are gathered using applicable block explorers and may not be exact. Node counts displayed by explorers do not account for hidden tor nodes. It is not uncommon for miners to use tor nodes, meaning actual node counts could be far higher.



1 TH/s (terahash) = 1000^4 = 1 000 000 000 000 hashes per second&nbsp; 1 PH/s (petahash) = 1000^5 = 1 000 000 000 000 000 hashes per second&nbsp; 1 EH/s (exahash) = 1000^6 = 1 000 000 000 000 000 000 hashes per second



Anyone can set up mining pools on proof-of-work blockchains, and anyone can add hash rate to a pool. This means that the hash rate in pools can be redistributed to other pools at any moment. Still, a higher distribution of hash rate among a larger number of pools is preferred for decentralization.



<h3 class="wp-block-heading">Proof-of-stake</h3>



Decentralization of a proof-of-stake blockchain can be measured by the count of stake pools or validators, distribution of the token supply across those validators, and the percentage of token supply that is staked. The higher the percentage of the token supply that is staked, the harder it is to disrupt the network.



Also consider the initial distribution of proof-of-stake tokens in private sales. Proof-of-stake blockchains determine who can add blocks to the chain based on the number of tokens they hold. The sale of tokens to venture capital firms or other inside investors before the public can purchase them can create unfair advantages for these early investors.



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* A validator cap is the limit of coins a validator can have. Some proof-of-stake blockchains use a saturation limit — validators that reach a certain threshold of staked coins begin receiving diminishing returns on their stake. These limits incentivize stakers to delegate to other smaller validators, helping to spread the coin supply across a broader validator set.



** A lock-up period is the time during which tokens cannot be moved after they are staked.



*** Binance combines the proof-of-stake and proof-of-authority consensus mechanisms. This system allows only those who have been approved by Binance to become validators. 



**** Terra has unbonded and bonded nodes. Bonded validators have reached enough tokens to begin earning rewards. Currently, only 130 validators can be bonded at a time on Terra.



<h3 class="wp-block-heading">Distribution of token supply across validators</h3>



The spread of the stake across validators can also give insight into a coin’s degree of decentralization.



Binance Coin (BNB): All staked BNB is delegated to the 21 approved validators on the Binance Smart Chain.&nbsp;



Terra (LUNA): All staked LUNA is delegated to the 130 bonded validators on the Terra network.



Solana (SOL): The top 19 validators on Solana’s network control just under 34% of the total stake on the network. Solana’s consensus model requires a supermajority, or greater than 66% of the stake, to reach consensus. 



If 33% of the stake colluded and decided to go offline, they can effectively perform a denial of service attack and shut down the network. While this does not necessarily result in false or lost transactions, it can cause intermittent downtime, which Solana has fallen <a href="https://cms.blockworks.co/what-is-solana-everything-you-need-to-know-about-the-ethereum-rival/" target="_blank" rel="noreferrer noopener">victim</a> to in the past. 



Cardano (ADA): Over 2,200 individual single-pool operators hold 22% of the total stake. One vector of centralization is Binance, which runs 62 pools and holds just under 12.4% of the total stake. The rest is made up of entities running 2 or more stake pools with 3.14% of the total stake or less.



Avalanche (AVAX): 50 nodes control 50% of the staked AVAX.



<h2 class="wp-block-heading">Accessibility</h2>



Bitcoin’s initial design was to be open and accessible to anyone. Early bitcoin nodes were run on basic home computers and did not require specialized hardware to mine. This changed when early bitcoin user Laszlo Hanyecz managed to mine bitcoin using a GPU (graphics processing unit), a processor more powerful than typical computer chips.&nbsp;



From that point on, bitcoin mining became a highly competitive market where miners rushed to buy the fastest GPUs to win as many blocks as possible. Eventually, companies formed to develop new chips dedicated to bitcoin mining.



While this bolstered the network’s security by increasing the cumulative hash rate, it lowered network accessibility. Only those with deeper pockets could participate in its infrastructure.



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*The cost to run a miner varies greatly depending on location and the type of energy used. <a href="https://www.asicminervalue.com/" target="_blank" rel="noreferrer noopener">ASIC Miner Value</a> was used to determine the profitability of miners, which uses an average energy cost.



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</script>



Hardware costs are estimates based on each chain's validator hardware requirements.



* The Binance Smart Chain only allows 21 validators at a time that all must be approved by Binance. 



<h2 class="wp-block-heading">Governance and development distribution</h2>



Investors seeking more decentralized projects should consider how a blockchain’s governance operates and whether development is controlled by a centralized organization or the community.&nbsp;



Some newer blockchains still rely on centralized development teams to make updates and may decentralize this process over time. Others, like Bitcoin, have broader development communities where proposals for change can be made by anyone.&nbsp;



<h3 class="wp-block-heading">Proof-of-work governance and development</h3>



Development for leading proof-of-work blockchains is mostly community-driven. Community members can submit improvement proposals that the community will then debate and implement if agreed upon. Should a majority of node operators agree that the proposal is the right step forward, then they will update their nodes with the new code that reflects the improvements.



There are nonprofit foundations, such as the Ethereum Foundation and Litecoin Foundation, that help support the development of these platforms. While these foundations can deploy money in certain areas, they do not dictate the direction of these platforms.



<h3 class="wp-block-heading">Proof-of-stake governance and development </h3>



Proof-of-stake blockchain governance and development are largely driven by founding teams. This is a centralization concern, but many of these networks are still in their infancy and require some sort of guidance to achieve technological goals. 



Validator count and distribution become more important when founding teams still have a large influence on upgrades. Should a founding entity want to enact a new change, the validators of the network still need to accept and download the changes for them to actually be implemented across the network. 



If there are very few validators and if the founding entity controls a large percentage of them, then that founding entity can unilaterally deploy changes at will. The more validators there are and the more they are spread among different entities, the more democratic protocol changes become.



Private sales can also have an effect on governance. If a large percentage of the token supply was sold to select insiders, they can have a large influence on governance and the general direction of a blockchain platform. 



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*On-chain governance refers to voting systems built into smart contracts on the blockchain. Voters use tokens they hold to place votes on changes directly on the blockchain.



<h2 class="wp-block-heading">Other Considerations</h2>



The world of crypto is messy and confusing. For this reason, some investors have only a basic understanding of their investments, allowing some coin founders to become more influential to a decentralized protocol than they should be. Even early bitcoin investors give Satoshi Nakamoto a deity-like status even though the pseudonymous person has no control over bitcoin’s direction.



While there is likely no reason for a figurehead to act in anything but the best interest of an ecosystem they helped to create, investors should still be wary of their influence.



Examples of this in today’s crypto market include Vitalik Buterin of Ethereum, Charles Hoskinson of Cardano, Gavin Wood of Polkadot and Anatoly Yakavenko of Solana.



<h2 class="wp-block-heading">Frequently asked questions:</h2>



<h3 class="wp-block-heading">What is decentralization?</h3>



A good or service is decentralized if it is run by a collective of participants using majority rule. In the case of bitcoin, its attributes, such as the total supply of bitcoins, are determined by the majority of its network participants.



<h3 class="wp-block-heading">How do you measure decentralization?</h3>



<h4 class="wp-block-heading">Proof-of-work</h4>



The decentralization of a proof-of-work blockchain is measured by the size of its hash rate, how distributed the hash rate is among different entities and how community-driven updates to the protocol are.



<h4 class="wp-block-heading">Proof-of-stake</h4>



Decentralization of a proof-of-stake blockchain is measured by the count of stake pools or validators, distribution of the token supply across those validators, and the percentage of token supply that is staked. The level of democracy in a proof-of-stake blockchain’s development and governance is another important consideration.

Measuring Decentralization: Is Your Crypto Decentralized?

<div id="highlights-block_62301fd6c7257" class="highlights">
 <ul>
 <li>A controverial section of the EU&#8217;s crypto draft bill has been voted down by the bloc&#8217;s economic committee</li>
 <li>Voting witnessed 23 votes in favor to 30 votes against, with a further six abstaining</li>
 </ul>
 
</div>



The EU Committee on Economic and Monetary Affairs (ECON) has voted against the implementation of a controversial clause that <a href="https://cms.blockworks.co/eus-crypto-bill-mica-heads-to-a-monday-vote-without-proof-of-work-ban/" target="_blank" rel="noreferrer noopener">some say possessed teeth</a> to effectively ban proof-of-work coins, including bitcoin.



ECON&#8217;s <a href="https://www.europarl.europa.eu/cmsdata/245802/ECON%20VS%2014%20March%202022%20(amendments)%20RESULTS%20(002).pdf" target="_blank" rel="noreferrer noopener">voting session</a> on Monday witnessed 23 votes in favor of the <a href="https://cms.blockworks.co/eus-crypto-bill-mica-heads-to-a-monday-vote-without-proof-of-work-ban/" target="_blank" rel="noreferrer noopener">Markets in Crypto Assets</a> (MiCA) draft legislation&#8217;s clause to 30 votes against, with a further six abstaining.



Specifically, the clause sought to subject the use of the crypto industry&#8217;s <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/" target="_blank" rel="noreferrer noopener">proof-of-work</a>-based digital assets to &#8220;minimum environmental sustainability standards.&#8221; 



Language in the bill also included a measure to &#8220;set up and maintain a phased rollout plan to ensure compliance with such requirements.&#8221; 



The wording was a revision to the bill which previously sought to establish a framework prohibiting crypto services from utilizing proof-of-work-based cryptos altogether.



Some, including Unstoppable Finance’s head of growth Patrick Hansen, viewed the language, including its revised wording, as &#8220;essentially the same&#8221; as a ban on bitcoin.



Lawmakers across the continent have been pushing for regulation on crypto mining, concerned proof-of-work is an energy-intensive crypto activity deemed &#8220;unsustainable&#8221; in light of the legislation&#8217;s aims.



Introduced in 2020, MiCA seeks to tighten regulation around digital assets by establishing a licensing regime on the continent and streamlining a uniform set of rules for the bloc&#8217;s 27 member states.



MiCA is part of the EU&#8217;s Digital Finance package that is attempting to &#8220;further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks.&#8221;



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EU Committee Votes Down Anti-proof-of-work Clause in Crypto Bill

Jacquelyn Melinek

<div id="highlights-block_616dad085fbd7" class="highlights">
 <ul>
 <li>Richter said he expects the full merge of ETH 2.0 to happen during the first quarter of 2022</li>
 <li>“The large adoption we see in DeFi today is crypto-native people who are very literate in the crypto sphere&#8230;but he next big thing is the simple activation of DeFi products&#8221;</li>
 </ul>
 
</div>



Staking cryptocurrency is complicated and difficult for most people, but Blockdaemon CEO and Founder Konstantin Richter thinks there’s an evolution on the horizon around liquid staking.&nbsp;



“Within the next year, staking and lending will bring DeFi to the masses. It’ll be a big shift, and it’s going to accelerate adoption,” Richter said.&nbsp;



Richter expects the full merge of <a href="https://cms.blockworks.co/?s=Ethereum+2.0" target="_blank" rel="noreferrer noopener">Ethereum 2.0</a>, which is transitioning from proof-of-work (PoW) to proof-of-stake (PoS), to happen during the first quarter of 2022. He also predicts that the market size of crypto will expand three to four times due to the evolution around liquid staking, lending and DeFi. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“I think we’ve seen enough progressive steps toward [Ethereum 2.0]&#8230;if it does come and does work, it’ll be the biggest mass adoption event of DeFi we’ve seen.”</blockquote>



Blockdaemon connects institutions to blockchains through its nodes. The company runs over 20,000 nodes and launches thousands of new nodes a month, Richter said. Blockdaemon recently added validation for SKALE (SKL) mobile staking, which allows users to <a href="https://blockdaemon.com/blog/skales-new-mobile-staking-experience/">stake SKL tokens</a> from within an app on their phone.



The node operator has grown 10 times as a company in the past year, launched 75% of their current nodes just in the last nine months and, by end of year, is expecting annual recurring revenue to be between $70 and $80 million, Richter said. 



In general, staking crypto involves users locking up a portion of their digital assets for an extended period of time, either by running validator software or delegating their tokens to a validator on the blockchain network. As a reward for helping to secure the network and participate in the processing of transactions, stakers can earn additional cryptocurrency — effectively a yield.&nbsp;



For example, users holding 32 ether (ETH) have the option to deposit their assets in the Ethereum 2.0 staking contract by running a staking node. Unlike the currently dominant version of Ethereum, which is secured by a mining process (similar to Bitcoin’s), Ethereum 2.0 will rely on <a href="https://ethereum.org/en/eth2/staking/">ether stakers</a> for its security — the validators who earn newly issued ETH in the process, currently around 6% annualized. But this requires a fair bit of technical know-how (and a considerable bankroll).



At the time of publication, there were over 7.9 million staked ETH (around $30 billion worth) securing the Beacon chain, which will eventually be merged with the current Ethereum Mainnet.



Richter thinks the complex process, which involves custodians, node operators, protocols and more, can be made more accessible. Liquid staking also enables would-be stakers to participate with a smaller amount of ether, and to avoid have it be locked until the merge is complete.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The large adoption we see in DeFi today is crypto-native people who are very literate in the crypto sphere,” Richter said. “But the next big thing is the simple activation of DeFi products,” he said. </blockquote>



Richter expects more seamless integrations of yield-bearing models aimed at customers who don’t want to jump through hoops to get it.&nbsp;



In the past few months, staking has become a hot topic and made headlines as both traditional finance and crypto businesses predict the industry to grow.



In July, senior analysts at JPMorgan Chase wrote in a report last week that the staking industry has a total revenue of $9 billion currently but estimates that staking revenue can grow to <a href="https://www.forbes.com/sites/emilymason/2021/07/01/jpmorgan-says-ethereum-upgrades-could-jumpstart-40-billion-staking-industry/?sh=3c1228991512">$40 billion</a> by 2025, following the Ethereum upgrades.

Blockdaemon

Blockdaemon CEO: Staking and Lending Will Make DeFi Mainstream

<div id="highlights-block_611ac531c9570" class="highlights">
 <ul>
 <li>“The people staking today are early initial investors but the characters are changing and one of our goals is to bring more people into staking &#8212; retail and larger companies &#8212; and increase participation and amount of people staking,” Figment Co-Founder and Chief Product Officer Andrew Cronk said</li>
 <li>Prior to the funding, the company said it experienced 20x quarter-over-quarter growth and hit over $7 billion in digital assets staked to its infrastructure across over 40 networks it supports</li>
 </ul>
 
</div>



Crypto staking firm Figment has raised $50 million in a new Series B funding round led by Senator Investment Group and Liberty City Ventures.&nbsp;



Notably, other participants include Mike Novogratz’s <a href="https://cms.blockworks.co/galaxy-shares-2q-loss-but-novogratz-bullish-on-defi-and-nfts/" target="_blank" rel="noreferrer noopener">Galaxy Digital</a>, Dan Tapiero’s 10T Holdings, Anchorage Digital, Declaration Partners, Bonfire Ventures, JPK Capital, 40 North, Finality Capital Partners, GSR, GFT VC and Hard Yaka.&nbsp;



Although Bloomberg reported Figment’s valuation at about $500 million, the company declined to comment on sharing a valuation, Andrew Cronk, co-founder and chief product officer at Figment, told Blockworks in an interview.&nbsp;



“When we started the company, the big bet was, you can launch a PoS [proof-of-stake] network. Our bet was that in the future there would be more blockchains and PoS and that has been proven true, a lot of blockchains have been launched in the last few years,” Cronk said.&nbsp;



For Figment, their next chapter is focusing on getting more people into staking, whether that be individuals or institutions, and bringing more developers into the space, he said. The funding will be used to grow the company’s headcount and diversify its services for the Web3 stack.



“The people staking today are early initial investors but the characters are changing and one of our goals is to bring more people into staking — retail and larger companies — and increase participation and amount of people staking,” Cronk said.&nbsp;&nbsp;



<h3 class="wp-block-heading">Moving toward Web3</h3>



The investment round further solidifies Figment’s role in building Web3 and accelerates its ability to assist the PoS industry with the development of back-end systems and infrastructure that provide yield on digital tokens and other assets, the company said.&nbsp;



“We think we can move toward Web3 by launching and experimenting,” Cronk said.&nbsp;



The capital raise also shows institutional investors’ support and demand for platforms that help create and support PoS assets that can produce a yield as well as appreciate in value like bitcoin, ether and other digital assets, Figment said.&nbsp;



“Proof-of-stake and the ability to earn yield will be an important catalyst in driving further institutional interest in the digital asset industry,” Mike Novogratz, CEO and founder of Galaxy Digital said.&nbsp;



“This funding round marks the start of a new chapter at Figment that aligns with the evolution of the industry. PoS has gone from proof-of-concept to mainstream, and is being adopted by investors and developers at a massive scale,” Figment CEO Lorien Gabel said in a statement. “Our 100+ institutional clients and billions in AUM is just the beginning for us. Our belief is that the majority of value and data will be exchanged, settled and stored on PoS blockchains,” Gabel added.&nbsp;



Prior to the funding, the company said it experienced 20x quarter-over-quarter growth and hit over $7 billion in digital assets staked to its infrastructure across over 40 networks it supports. The company has raised about $55 million to date.&nbsp;



When Figment runs validators, they earn tokens and keep almost all of it, he added. “So that means we have a direct incentive to increase the direct participation and value on the network. If we’re sitting and growing longer and longer on this network, we’re trying to grow this space. It’s all about incentives, we&#8217;re living it, we’re walking it, we’re trying to do everything we can,” Cronk said. 



<h3 class="wp-block-heading">Proof-of-stake explosion</h3>



The PoS industry has faced explosive growth this past year, through Ethereum 2.0 and other PoS layer 1 protocol launches like Polkadot, Solana and Terra, the company said. “The desire to earn a real positive yield from staking was one of the main factors for the expected growth of the industry,” it said.&nbsp;



A lot of staking opportunities have popped up within the crypto community. Analysts predict the staking industry will boom in the next several years.



Last week, the crypto wallet Ledger announced that it will now allow users to stake ether through Lido directly on Ledger Live’s interface, Blockworks <a href="https://cms.blockworks.co/crypto-wallet-ledger-seeks-to-make-ether-staking-more-accessible/" target="_blank" rel="noreferrer noopener">reported</a>. Separately, Kraken said it <a href="https://cms.blockworks.co/kraken-clients-earned-100-million-in-staking-rewards-in-first-half-of-2021/" target="_blank" rel="noreferrer noopener">paid out more than $100 million</a> in staking rewards to customers in the first half of 2021, Blockworks also reported.&nbsp;



Lastly, the Ethereum Foundation launched its staking campaign for <a href="https://ethereum.org/en/eth2/" target="_blank" rel="noreferrer noopener">Ethereum 2 (ETH 2)</a> last fall. For the next generation of Ethereum, staking is important as the network is going through a fundamental infrastructure change from proof-of-work (PoW) to PoS. PoW is determined by how much computing power users have at their <a href="https://cms.blockworks.co/institutions-staking-eth-2-want-internet-bonds/" target="_blank" rel="noreferrer noopener">disposal</a>.



On the other hand, with PoS, authority is measured on how many tokens you are holding. Thus, in order to bootstrap this network, a sizable amount of tokens are needed to be held by a large group of people for some time for it to pay off.&nbsp;



Want more investor-focused content on digital assets?&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" rel="noreferrer noopener">Join us</a>&nbsp;September 13th and 14th for the Digital Asset Summit (DAS) in NYC. Use code ARTICLE for $75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" rel="noreferrer noopener">Buy it now</a>.