- Ethereum is “well distributed across an ecosystem of diverse stakeholders, users, developers, investors, enthusiasts, and others,” making it less vulnerable to attacks
- Post-Merge, Ethereum’s major challenge will be privacy
As the Ethereum Merge draws near, a key factor that will determine its success is the relative security of the blockchain under a proof-of-stake (PoS) regime. Experts say that Ethereum’s PoS chain will maintain the network’s security but at much lower cost.
In a proof-of-work (PoW) system, counterfeiting cryptocurrencies requires a singular miner to control more than 50% of the entire network. Even then, mining requires a significant amount of electricity and hardware, making it incredibly time consuming and costly to take control of the network. Other network nodes can detect such an attack and potentially fork away from the nefarious miners — a layer of social consensus that makes a matured PoW system such as Bitcoin nearly impossible to attack.
Similarly, in PoS systems, validators — who are the equivalent to miners in PoW — are randomly assigned to produce blocks proportional to the number of tokens they hold as they verify transactions on the blockchain.
Just as miners on PoW systems must expend a significant amount of electricity to attack the system, PoS validators have an investment in the form of cryptoassets at stake. Unless an attacker controls at least 51% of the blockchain’s staking tokens and simultaneously controls at least 51% of the network’s nodes, it is extremely unlikely for them to carry out a successful attack. Any bad actors will have their stake slashed.
Alex Shipp, the chief strategy officer at Offshift, told Blockworks that what makes a PoS system resistant to 51% attacks and other high-risk scenarios is that Ethereum’s native token ether (ETH) “is well distributed across an ecosystem of diverse stakeholders, users, developers, investors, enthusiasts, and others.”
“When there are a lot of different economic agents with unique perspectives, objectives, and agendas in any free market — be it a traditional financial environment or an emergent, decentralized ecosystem — it becomes exponentially more difficult to attack, corral, and control,” Shipp said.
Withdrawing stake will remain impossible post-Merge
For Shipp, what is most important following the Merge is the successful execution of a further upgrade, dubbed Shanghai, that will enable the withdrawal of staked ether.
Staking rewards earned to date on the Beacon Chain and even after the Merge will remain locked until the completion of the Shanghai upgrade, which is planned to occur at least 6-12 months from now.
“The freedom to withdraw is a key component of any staking feature, and the Shanghai upgrade will play an instrumental role in properly incentivizing a wide array of users and organizations to begin contributing to Ethereum’s new PoS consensus,” Shipp said.
Stakers may be averse to putting their ether to work in an environment where they are unable to withdraw it, Shipp said. Though, according to network stats, about 13.2 million ETH or $22.5 billion worth is currently staked, representing 11% of the total ether supply.
Post-Merge, Shipp said one of Ethereum’s major challenges will be the provision of privacy — namely on layer-1, the network’s most decentralized environment.
“As the data economy takes form, demand for on-chain privacy will grow exponentially, and both the robustness of Ethereum’s PoS consensus and its industry-leading position as cryptocurrency’s go-to public blockchain ecosystem will be at risk if it does not have an answer for user privacy,” Shipp said.
Vijay Mehta, the chief innovation officer at Experian, a multinational consumer credit reporting company, shared similar sentiments.
“After the Merge the next big step for the Ethereum network is scaling the Beacon Chain and ensuring that consumer data is not compromised,” Mehta said.
“Scalability has a direct correlation back to security because the more scalable you are, the more throughput on transactions, the more monitoring should be in place,” Mehta said.
“Anything that we can do to protect the privacy of consumers is always a priority.”
For Mehta, who is well versed in the traditional finance space, focusing and working closely with regulators to ensure that there is a safe environment for consumers in the decentralized finance space will stay paramount following the Merge.
“The work we are doing within technology, data, and analytics…plays into the growth and transformation of the growing industry,” he said.