This week, the Ropsten Testnet network successfully migrated to proof-of-stake (PoS), meaning we are one step closer to the much-discussed Ethereum Merge. What does this all mean? And what impact will it have on NFTs?
As usual, we’ve got the answers. No jargon, just the good stuff.
Previously, we discussed Blockchain validators in our ‘What is Blockchain?’ entry.
Long story short, writing data on the Ethereum blockchain requires others to agree with you. These are called (validators). In order to become a validator, you need to solve complicated maths puzzles. This is called Proof of Work (PoW) - validators solve complicated encryptions every time someone wants to write data to the blockchain which has proven to be a very inefficient method. Storing just 1Mb of data on the blockchain can run up a multi-thousand dollar electricity bill. This bill is the infamous gas fee you pay whenever you mint something. The Ethereum Merge will turn Ethereum from PoW into PoS.
Simply put, instead of solving puzzles to become a validator, you instead need to own Ethereum and stake it (set it aside) - essentially showing you have enough skin in the game. This makes validation, and consequently gas fees, much cheaper - up to 99% - because owning ETH and staking it to validate is not quite as energy-intensive as cracking a puzzle.
Shifting to PoS makes Ethereum significantly cheaper, more efficient, and environmentally friendly. But what does this mean for NFTs? Well, for starters, liquidity will increase. Switching to PoS makes transactions cheaper which in turn leads to more transactions. The move to PoS allows for on-chain utility and integration to become more widespread. It will also make trading a cheap NFT a more attractive prospect if the transaction fee is not larger than the value of the NFT itself.
For a closer look at why Fair.xyz is getting rid of high gas fees, read our ‘We are making high gas fees disappear’ entry.
Today, many NFT projects have to move away from Ethereum into Layer 2 solutions to circumvent the issue of high gas prices for more complex systems. PoS will enable blockchain solutions to become more scalable - the network will be able to handle as much as 3000x of the current capacity for transactions per second. With climate anxiety in no short supply, one of the primary benefits of switching to PoS is minting on Ethereum becoming an eco-friendly solution, opening the door to a wide range of brands, companies, and entities entering the space.
The Merge into PoS is expected to happen later this year, sign up on https://fair.xyz now, for early access to our game-changing NFT platform.