On 15th September, Ethereum developers successfully activated a large-scale update known as ‘The Merge’ - a long-awaited transition from Proof-of-Work (POW) to Proof-of-Stake (POS).
We gave an overview on our blog last week, but in case you don’t know, it’s expected to increase the number of transactions processed within Ethereum blockchain from 30 to 100,000 per second. It’s also designed to make Ethereum more sustainable by reducing the ETH emission rate.
Next year, Ethereum developers will launch the next phase of this and implement sharding, meaning transactions will be processed in isolated validation groups. This will further reduce congestion on the network.
How will this affect Layer 2 solutions?
In the past, Layer 2 (L2) solutions were created to address scalability issues with the previous POW Ethereum network. L2 solutions currently use rollup mechanisms to offer high speed transactions, including Optimistic Rollups and Zero Knowledge Rollups.
Nevertheless, this is the same goal that the new POS Ethereum network aims to address, meaning that L2 protocols will have to provide something more than just fast crypto transactions to ensure they still have a use-case.
Ethereum’s developer, Vitalik Buterin, recently announced that he believes that Zero Knowledge Rollups are likely to replace Optimistic Rollups in the future, suggesting how L2 networks may need to adapt moving forward to remain competitive.
How will POS affect the crypto market?
Ultimately, in the long-term, the Merge is a good opportunity to create even more user-friendly apps that will be able to keep up with the speed and functionality of Web 2 and 3.
In the shorter-term, it’s possible that the price of ETH and L2 tokens will be affected by the Merge. Against many analyst’s predictions, the price of ETH has currently fallen, likely due to a large number of staked ETH that has now been released. However, there is the possibility that the price will rise as the market gradually recovers.
Nevertheless, despite concerns about the outcome of The Merge, it’s now complete, thus starting a new adventure for the Ethereum fans.
You can read more about Ruslan’s insights on how POS will affect off-chain scaling solutions in this article!