This Wednesday, October 27th will see the first upgrade to Ethereum 2.0; the Altair hard fork. The fork represents a significant step in moving Ethereum 2.0 from Proof-of-Work (PoW) to the Proof-of-Stake (PoS) consensus mechanism, which will reduce Ethereum’s energy consumption by 99.9%.
This overall network upgrade is set to rival the competitive scaling advantage that ‘Eth Killers’; Solana, Cardano, and Avalanche have historically had over Ethereum. Until now, Ethereum's PoW consensus has bottlenecked transaction scalability and speed and left users subject to increasingly high transaction fees.
The second phase of the Ethereum 2.0 upgrade introduces ‘sharding,’ which divides the network nodes into groups so that transactions can be processed at a higher speed and frequency. However, Ethereum is quite late to the party with the introduction of this technique. With this in mind, we’ve compiled a variety of reactions from industry leaders within the blockchain space below.
We’ve compiled a variety of reactions from industry leaders within the blockchain space below.
First, Mitja Gorovshevsky, Co-Founder and CTO at TON Labs, commented, “This movement by Ethereum 2.0 is very welcomed by the community, as both conversations and attention ramp up around crypto’s environmental impact. Proof-of-stake has already demonstrated its value from not only an environmental perspective but also through security guarantees, held to an enhanced level even more so than other leading networks such as Bitcoin. Therefore, this upgrade encompasses many benefits to the ecosystem.”
“The action of penalizing validators if they choose not to comply with this upgrade is another proof point that the Ethereum Network is in fact centrally managed by its developers. The next advancement in Web3 protocols will be a further movement away from these strategies, with a heightened focus on end-to-end decentralization.”
“While many projects are opting to introduce shard chains as a way to bolster transaction speed and throughput, the strategy that we see from Ethereum 2.0 is somewhat less significant in this regard, as this measure will ultimately only affect a reduction in the global size of its state, as opposed to optimizing network performance.”
Second, Ioana Frincu, CTO of EQIFI, the decentralized finance platform for lending, borrowing, and investing ETH, stablecoins, and select fiat currencies, said, “This is a massive leap for everyone using this blockchain. Transitions will be more efficient, energy consumption will decrease and the entry barrier to be a validator will be much more accessible. Despite this, I don’t necessarily think that Ethereum moves to PoS other chains will follow. Let's take Bitcoin as an example: Bitcoin is peer-to-peer electronic cash so the transactions in that network are mostly simple transfers. On the other hand, Ethereum is a platform for developing distributed applications. This means that transactions are more complex and there is more information flowing through the system. Unless a blockchain has a clear need to make itself more efficient, either to process more information or to support multiple transactions, there is no need to move to PoS.
Validators on Eth2.0 who do not cooperate with this change will be penalized. Until now, the network’s PoW consensus was based on the fact that each miner "worked" for their reward. Now, with PoS, miners must figuratively "put their mouth where their money is". This means that the risk structure changes. Instead of high costs to set up mining operations and mine blocks, you validate transactions and you have to have skin in the game. I welcome this measure and believe that it is a huge change for the better.
The network is also moving towards the long-term introduction of shard chains. This has been needed for over three years now and the change has been postponed numerous times. The advantage of shards being added to Ethereum is that operations can now be recorded on 64 new chains instead of recording everything to the main chain. This will increase the speed of processing transactions exponentially and bring a new DeFi era.”
Next, Witek Radomski, CTO at Enjin, emphasized, “We have been waiting for Ethereum’s transition to Proof-of-Stake for years. This move will result in a more powerful network that will reduce the environmental impact and optimize energy usage, serving as a strong counter-argument to the anti-crypto narrative of ‘blockchain is bad for the environment. As such, less severe gas fees should help with the mass adoption of NFTs and blockchain gaming in the long run. Other PoW networks, especially those based on Ethereum's codebase, will be watching closely. I believe Bitcoin will remain on a PoW algorithm for the foreseeable future, but only time will tell.”
“This fork is significant for Ethereum's future, and validators must comply with the network's rules or risk ‘slashing’ penalization. These penalties are imperative for Proof-of-Stake to succeed at scale as it deters malicious behavior.”
“Both chain and state size are significant growth obstacles for Ethereum. Polkadot and Kusama are also sharding their relay chains, in a sense, but allow for each shard to be a custom-built parachain. Ethereum's model is a horizontally sharded EVM, which works well with its smart-contract-based design. Both models have their own advantages, and as long as cross-shard messaging remains functional with ease of use, Ethereum will remain ultra-competitive.
However, Layer 1 chains that do not have a strategy around data growth will all encounter similar problems, as we have seen most recently with Polygon raising its costs 30x. Even so, with Ethereum's previous bottleneck removed, developers and users will become more ambitious and will try to push the blockchain to new limits. It’s likely that older generation chains may struggle to compete with the likes of Polkadot and Ethereum.”
