Which blockchain challenge is skale helping the ethereum ecosystem overcome? The answer is high cost and slow speed. Now that you’ve got your answer do you think the post is not worth reading anymore? Well, you are wrong.
If you want to know the full story behind the Blockchain challenge, the article is worth checking out. So, without further ado let’s get down to it.
Which Blockchain Challenge is Skale Helping the Ethereum Ecosystem Overcome?
Last year, the market for NFTs—tokens that stand in for digital artwork, music, films, and similar items—exploded to $44 billion. Due to this, Ethereum, the blockchain network where the majority of NFTs are traded, received a lot of attention.
It also raised a lot of awareness about another issue, namely how much energy is wasted when mining cryptocurrencies.
A central gatekeeper, such as a bank, is not present in blockchains to authenticate transactions. The two biggest cryptocurrencies, Bitcoin and Ethereum, instead rely on a consensus process called “proof of work” to preserve a time-ordered record of transactions. At the center of such procedures are crypto miners.
Decentralization has a high price. This cost is computer power in the case of proof of work. In Proof of Work, miners compete with one another to solve a challenging mathematical problem.
Anyone who fixes the issue first receives freshly created coins in exchange for updating the ledger by adding a new block to the chain. This calls for a significant quantity of computational power and, consequently, electricity.
According to Digiconomist, Ethereum consumes 113 terawatt-hours of energy annually, the same amount as the Netherlands. A single Ethereum transaction can use more energy than a typical US home uses in over a week. Even more energy is used by bitcoin.
Why is the Blockchain facing a challenge?
The globe is currently experiencing a power shortage, which is in part to blame for China’s ban on cryptocurrency mining last year and for the expulsion of miners from nations like Kosovo and Kazakhstan, and the turning off of their energy. To keep their industries operating and their households warm, these nations require electricity.
Proof of employment creates electronic waste in addition to wasting power. Infrequently, specialized computer servers used for cryptocurrency mining are still in service after 1.5 years and wind up in landfills.
Other flaws in Ethereum’s system include its excruciatingly sluggish average transaction rate of 15 transactions per second. And it is not scalable. In 2017, a transaction backlog on the network was brought on by the game CryptoKitties, which lets users breed and sell cartoon cats.
Now is a good time for Ethereum to distance itself from proof-of-work mining given the amount of funding venture capital companies are pouring into Web3, a futuristic paradigm where apps would all operate on decentralized blockchains, most of it powered by Ethereum itself. And that is the strategy.
Ethereum intends to switch its whole network to proof of stake, which it claims would consume 99 percent less energy, enabling the network to expand, and maybe help it reach 100,000 transactions per second, somewhere in the first half of 2022 in a dramatic event known as “The Merge.”
In fact, Ethereum’s transition to proof of stake has been scheduled for six months. “[We assumed] [POS implementation] would take a year… but it actually [has] taken around six years,” Vitalik Buterin, the creator of Ethereum, said to Fortune in May 2021. This is so because creating such a model is difficult.
What is proof of work?
The first blockchain was Bitcoin. Its designer wished to eliminate the influence that states or large banks, who were frequently third parties, had on financial systems.
The inventor of Bitcoin had to come up with a means to prevent anyone from trying to rig the system and spend the same coins twice in a blockchain where users maintain a shared record. An ingenious workaround served as proof of concept; while it wasn’t flawless, it was enough.
“Proof of something” prevents malicious actors from establishing a sizable number of ostensibly independent virtual nodes and utilizing them to control the network by requiring a substantial upfront expenditure. In essence, you must pay to play.
This investment in Bitcoin’s proof of work is hardware. Bitcoin miners compete to solve a problem around every ten minutes. The winner adds the subsequent block to the chain and receives the block reward, which is fresh bitcoins.
Finding the answer, though, is like attempting to win the jackpot. You have to keep guessing until you are successful. You can make more educated estimates the more powerful the machine is.
There are vast server farms all over the world that are just used for that, making trillions of guesses per second. In addition, larger mining operations save more money, which increases their market share. This undermines the decentralization idea. Any system using proof of work will inevitably become more centralized.
In the case of Bitcoin, this ultimately resulted in a small number of powerful corporations controlling the network.
Crypto aficionados, however, have been looking for alternative consensus methods since the beginning of Bitcoin’s existence that can maintain some kind of decentralization and are less wasteful and environmentally damaging than proof of work.
How does it work?
One of the most well-liked options has been proof of stake, initially suggested on the internet forum BitcoinTalk on July 11, 2011. In fact, the white paper that first introduced the new blockchain in 2013 intended for it to be the system securing Ethereum from the beginning.
However, creating such a system was “so non-trivial that some even think it impossible,” as Buterin stated in 2014. Ethereum decided to use a proof-of-work architecture for its initial launch instead and started working on a proof-of-stake algorithm.
With proof of stake, “validators” take the role of miners. You invest in the system’s native currency rather than purchasing energy-guzzling computer farms.
You must lock up—or stake—your tokens in a smart contract, a piece of blockchain-based computer code, to qualify as a validator and get the block rewards. The smart contract receives bitcoin when you transfer it to its wallet address, holding it there like you would put money in a safe.
Conclusion
The transition of Ethereum to proof of stake is a major project. On the Ethereum blockchain, thousands of current smart contracts are in operation, with billions of dollars in assets at risk.
Furthermore, despite the fact that staking does not directly harm the environment in the same way as computer storage facilities do, opponents point out that proof of stake and proof of work is equally good at upholding decentralization. The biggest stakes win the biggest payouts.
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