If all goes according to plan, Ethereum’s shift to an environmentally friendly blockchain capable of scaling vastly beyond what would be needed to make it a viable payments rail will take place on Sept. 19.
That is when — if all goes according to plan — the No. 2 blockchain will undergo the “merge,” switching from the current Bitcoin-style consensus mechanism that requires as much power as whole countries to an environmentally friendly proof-of-stake (PoS) process that will keep it secure while adding new blocks of transactions to the blockchain with virtually no notable carbon footprint.
See also: Crypto Basics Series: What’s a Consensus Mechanism and Why Is It Destroying the Planet?
Seven years in the making, the new Ethereum 2.0 will see the primary smart contract platform become capable of scaling to 100,000 transactions per second (TPS) with a 12-second “block time” that will give it transaction finality in about 6 minutes.
Read more: Ethereum 2.0 Will Not Be Any Faster, Vitalik Buterin Said. But It Will Still Scale Massively
The merge is when all existing applications on Ethereum — including most of decentralized finance (DeFi), as well as most blockchain-based projects like supply chain management and cross-border payments will be ported over to the PoS Ethereum 2.0 blockchain.
All of these applications are based on the use of self-executing smart contracts, which are the primary mechanism behind every use of blockchain other than as a straight payments currency.
See more: DeFi Series: What Is a Smart Contract?
The move to Ethereum 2.0 is rapidly becoming more important for the broader cryptocurrency industry as concerns over the staggering pollution Bitcoin and Ethereum cause are threatening the entire technology and mainstream investors and corporations grow more and more disenchanted by blockchain’s biggest Achilles’ heel.
See also: Can Proof-of-Stake Solve Crypto’s ESG Problem?
While warning that Sept. 19 isn’t a firm date, main Ethereum developer Tim Beiko’s projection is the first time that a merge date has been given, beyond a timeline of months or quarters. The price of ether spiked 45% over the weekend on the news.
This merge timeline isn't final, but it's extremely exciting to see it coming together. Please regard this as a planning timeline and look out for official announcements!https://t.co/ttutBceZ21 pic.twitter.com/MY8VFOv0SI
— superphiz.eth ???️ (@superphiz) July 14, 2022
A True Payments Solution
For the payments industry, however, Sept. 19 isn’t the key date. That is projected to be in the first quarter of 2023, with the introduction of “sharding” technology to Ethereum 2.0, which is essentially the ability to split the network up into pieces.
This promises to vastly increase the speed and number of transactions the blockchain can process and drastically lower transaction fees that can range from several dollars to well over $100 — although in recent weeks it has fallen slightly below $1 for the first time in several years.
In the meantime, however, making transactions faster and cheaper will still require the use of Layer 2 solutions like Polygon, which builds a second blockchain on top of the Ethereum network where transactions take place, with only the finalized data moved down to Ethereum proper to be added to the immutable blockchain.
Read more: Blockchain Basics Series: What is Polygon? An Ethereum Killer Hedges Its Bets
It works in the same way as Bitcoin’s Lightning Network, which is rapidly being adopted by payments processors like Block’s Cash App and Stripe as they roll out affordable, scalable payments.
See also: Stripe Rolls out Crypto Payment Capabilities, Signs Twitter on as First User
See also: Bringing Bitcoin Firmly into Payments, Strike Partners with NCR, Shopify, Blackhawk
See also: Cash App Integrates Bitcoin Lightning Payments
While there have been concerns that PoS is not as secure as PoW mining, it shouldn’t be a problem for Ethereum 2.0. This is because the security concerns are a factor of how many “validators” PoS networks have ensuring that transactions are real and fairly added to a blockchain. They put up stakes — essentially bonds — that can be seized by smart contracts for bad behavior.
While some have under a dozen, Ethereum 2.0 requires a minimum of more than 16,000 and currently has nearly 350,000 on the premerger testnets. About $35 billion has been prestaked for Ethereum 2.0.
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