5 min read
ConsenSys CEO and Ethereum co-founder Joe Lubin is still confident that the next era of Ethereum will arrive within the next few months.
In an interview with Decrypt last December in Miami, Lubin predicted Ethereum 2.0 would come "by Q2 or possibly slipping into Q3" of this year. Last week, during a fireside chat at the Camp Ethereal crypto event in Wyoming, Lubin stuck with that predicted timing.
"The merge is happening, surprisingly, on that same timeframe," said Lubin. "So my estimate stays the same. We have a team working strongly, heavily on it."
He cited a key event to bolster his prediction.
The next step will transition the current Ethereum mainnet (let's call that Ethereum 1.0) to a sort of ghost network currently operating in parallel (technically called the Beacon Chain, it will evolve into Ethereum 2.0). The mechanics of this transition led the Ethereum Foundation in January to rebrand the "Ethereum 2.0" name in favor of "consensus layer," or in Lubin's words, the "consensus chain."
Beacon Chain isn't executing real transactions right now, but is instead creating a home for validators (computers that validate crypto transactions) to lock up their hard-earned Ethereum. It’s laying the groundwork for Ethereum’s shift from its current method of verifying transactions using proof-of-work (PoW) to a different method called proof-of-stake (PoS).
Bitcoin also uses a PoW mechanism and has caught global criticism for its enormous energy usage. There are no immediate plans to change this.
Under the new mechanism, Ethereum validators, like PoW miners, are rewarded for ensuring the network is processing correct transactions. Right now, this reward pays out 5.54% in ETH to stakers, according to data pulled from Staking Rewards.
However, if validators get caught adding fraudulent transactions to the Ethereum blockchain, they get penalized. This penalty is monetary and gets drawn from the 32 Ethereum needed to stake in the first place in order to become a validator.
On Tuesday, Ethereum developers announced that they had successfully trialed this Merge event on a public testnet called Kiln. A testnet is essentially a crypto sandbox where developers test new upgrades or changes to a protocol without causing serious damage to an actual blockchain network. "And it seems to have worked," tweeted core developer Tim Beiko. "Post-merge blocks are being produced by validators, and they contain transactions!"
It's a small celebration for an incredibly technical task, one that is made even more pressurized given Ethereum's current market cap of $337 billion.
Once it's executed on the mainnet, Ethereum 2.0, now rebranded the "Consensus Layer," will be alive and kicking.
Alongside the various bets surrounding the exact launch date, Crypto Twitter threads have spilled much digital ink explaining and debating what this upgrade will mean for the network and its users.
Ethereum 2.0 will bring about several key changes, namely creating an environment where shard chains and rollup technologies can increase the speed of transacting as well as lowering costs—in theory.
If you ask Lubin, Ethereum 2.0 will indeed bring lower energy usage and lower gas fees, though many in the crypto community have their doubts about the latter.
"The merge will lay to rest proof-of-work, will lay to rest Ethereum's carbon or energy footprint problem, that all goes away," Lubin said at Camp Ethereal. "Orders of magnitude less expensive, energetically. And another exciting thing about about moving to proof-of-stake is that proof-of-work requires a lot of issuance of ether in order to incentivize these people with heavy infrastructure, to lend their resources and validate transactions on the network. And so if you have very light infrastructure, then you can issue much less ether per block that's constructed."
After making Ethereum cheaper and more environmentally friendly, Lubin added that the upgrade will also turn the world's second-largest cryptocurrency into "ultra-sound money." The term is a play on the idea that gold and Bitcoin are sound money because their supply is capped and cannot be changed. "Ultra-sound money goes a step further."
The shift to Ethereum 2.0 will result in a much lower emissions rate, which means fewer Ethereum will be given to validators for securing the network because their operating costs are much lower. Running a traditional PoW mining outfit, for instance, comes with an enormous overhead and only makes sense if the reward is worth it. Without that overhead, validators remain incentivized to do their job even if the rewards are cut. This, in turn, means there will be a smaller supply of new ETH entering the market.
At the same time, Ethereum's latest EIP-1559 improvement introduced a burn mechanism that destroys a certain amount of ETH with each transaction.
These two changes create an environment in which tons of ETH is being destroyed on one end, while fewer ETH is being created on the other. Instantly, a dramatic deflationary pressure emerges.
"When the merge happens," said Lubin, "we're going to be burning more ether every single day than is issued, because much less ether will be issued to secure the network, and so ultra-sound money is about to come into existence."
Lubin's comments amounted to a compelling case for the future price of ETH, though he was careful to add for the audience at Camp Ethereal, "This is not financial advice." And Decrypt does not dispense investment advice either.
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