In two weeks, the Ethereum blockchain is scheduled to undergo the Merge, switching the way it validates transactions from proof-of-work to proof-of-stake, which will dramatically decrease its energy usage and carbon emissions.
Just ahead of the highly-anticipated event, Buterin highlighted the security benefits of migrating from proof-of-work, adding that it may come to threaten Bitcoin in the long-term, while sharing his perspective about the crypto market and its future.
A matter of efficiency, says Buterin
According to Buterin, proof-of-stake is a far more efficient system in terms of providing marginal security. “The question is always: how much security can you buy for every dollar per year that you spend on paying for it?” Buterin said. “Proof-of-stake can buy something like 20 times more security for the same cost.”
In fact, the Ethereum co-founder identifies the very parameter that he feels security ultimately depends on, specifically the cost of entry for participation in a blockchain network. While proof-of-stake validators have low ongoing costs and high entry costs, proof-of-work miners have medium ongoing costs and medium entry costs.
According to Buterin, Ethereum will benefit from the higher cost of entry, “as that’s what an attacker has to pay to attack.”
Long-term threat to Bitcoin
As proof-of-work provides much less security per dollar spent on transaction fees, Buterin envisioned the consensus mechanism as posing an underlying security threat to Bitcoin.
In the long term, once all Bitcoin has been issued and mining no longer secures the network, Buterin said that Bitcoin security is going to come entirely from fees.
However, he believes that “Bitcoin is just not succeeding at getting the level of fee revenue required to secure what could be a multi-trillion-dollar system.” Consequently, Buterin postulates that only a small proportion of Bitcoin would be required to pose a serious threat. “What would a future look like when there’s $5 trillion of Bitcoin, but it only takes $5 billion to attack the chain?”
That being said, Buterin does believe that cryptocurrency markets will eventually settle, and become as typically volatile as gold or the stock market. Although the first few downturns were heavily shaded by existential uncertainty, “after 2017 the uncertainty moved over to whether or not it would gain the levels of mainstream legitimacy needed to support a higher price level, which is still roughly where we are in 2022.”
Regarding the current market downturn, Buterin said he was surprised that it had not happened sooner. He explained that while a rapid drop usually comes to crypto bubbles roughly six to nine months following a previous peak, this time the bull market lasted for over a year and a half.
Having revealed certain business models to be unsustainable, Buterin believes the downturn will help crypto projects become more useful
“In 2022, crypto finally feels meaningfully useful; lots of mainstream organizations and even governments are using it as a way to send and receive payments, and I suspect other applications are soon to come,” Buterin concludes. “The future still feels less uncertain, but we have much more of a view than before as to how it’s all going to play out.”
BeInCrypto has reached out to company or individual involved in the story to get an official statement about the recent developments, but it has yet to hear back.