The Merge: What It Means To Ethereum
The Ethereum Merge, which has been delayed for several years, is scheduled to take place in just a few days September 15-16. The Merge, also touted as Ethereum 2.0 or ETH 2.0, will most likely take place September 15-16. The widely-anticipated Merge is an upgrade from the current proof-of-work consensus to a more energy-efficient proof-of-stake consensus system.
This means that it will replace miners, which consume decentralized computational power in verifying transactions, with validators. The validators will instead lock up or stake their digital assets in the network for ETH rewards, reducing energy consumption by 99%. ETH 2.0 is predicted to improve security and scalability, and minimize the Ethereum Network’s carbon footprint.
Shortfalls of Proof-of-Work
Bitcoin and Ethereum use a proof-of-work mechanism to add new blocks to the networks, which typically expends an enormous amount of electricity. Whenever a new block is expected to add to the blockchains, miners across the globe compete to be the first to submit the solution to an incredibly complex math problem. The first miner to solve the problem is rewarded with the cryptocurrency. This is how new tokens and coins are released into the network’s economy.
The process is extremely energy-consuming and has a significant global carbon footprint. For instance, Bitcoin has nearly a million miners, while Ethereum has roughly 120,000 miners. Whenever each miner validates a transaction or solves a math equation, the other miners trying to solve the same problem are just wasting energy and generating hardware waste.
What is the Merge?
The Ethereum Foundation has carried out several testnet merges this year to ensure a successful and safe transition to the PoS model. The public testnets were essentially dress rehearsals to ensure that Ethereum could continue running on the PoS chain. The first two testnets, Ropsten and Sepolia, were highly successful and boosted the community’s confidence about the impending Merge. The activation of the Bellatrix upgrade to Goerli’s beacon chain was the most recent and final public testnet, and demonstrated a successful launch.
The Merge is the integration of the Beacon Chain, which runs on a proof-of-stake algorithm, and the Ethereum Mainnet. The existing execution layer has been running in parallel with the new Beacon Chain since December 1, 2020. However, the Beacon Chain does not currently process Mainnet transactions, but agrees on active validators and account balances to reach consensus. The Merge will make the Beacon Chain the block production engine.
Rather than validating block production via mining, the PoS validators will assume the role of validating all transactions and proposing blocks. In a PoS system, unlike PoW, a user’s participation is proportional to the amount of digital assets they hold in the network. In simple terms, the network selects nodes that will validate transactions based on their stake in the system and reward them with transaction fees. The Merge will also merge all the transactional history of the network.
What are the Tradeoffs?
The Ethereum Merge will create the groundwork for different aspects of the network’s roadmap, including enabling more efficient transactions. As mentioned above, the upshot of this integration is improved security, scalability, and a more environmentally-friendly ecosystem.
Security and Sustainability
The Merge is intended to keep the network more secure using the proof-of-stake model. Instead of a race between multiple miners, the PoS model selects a node based on its stake in the network. The stake is used as collateral against bad actors. This means that when a validator approves a fraudulent transaction, their stake in the network is confiscated and used to reimburse the loss. It will also enable non-block-producing nodes to participate in the network, reducing the economies of scale.
In a PoW model, an increase in the ETH price would mean an equivalent increase in the equilibrium of mining power in the network. However, the equilibrium of mining power remains the same in a PoS mechanism. Since only a single node is doing all the work that doesn’t involve complex math equations, validators can consume less energy to run. The switch from PoW to PoS is expected to achieve approximately 99.95% energy reduction during transaction validations within the decentralized network. This will be the most significant change in the network.
There will be no significant transaction costs or network speed changes. The debate around the blockchain paradox or trilemma– decentralization, scalability, and security, is that it is impossible to optimize all three of them simultaneously. Thus, the Merge lays the groundwork for future scalability upgrades, since scalability is technically outside its current scope.
Ethereum developers aim to solve the scalability issue using a system of multiple layers by sharding. However, sharding was postponed to sometime in 2023 after the Merge. Until then, Layer 2 rollups will continue scaling or increasing Ethereum’s capacity, while borrowing the network's security guarantees.
What it Means for Crypto
The news of the Merge has angered several miners, who might develop a new Ethereum fork. If this happens, there will be multiple competing chains. The overall impact of this on the crypto-economy is unpredictable. However, upon the successful release of the Goerli testnet, massive transactions were witnessed in the crypto space, seeing the price of ETH hit a 2-month-high above $1,880. Ethereum proponents are positive the shift might push the coin back to its original price before the crypto winter, and possibly higher.
Moreover, crypto investors project that it will unlock more growth potential in the ecosystem. = Furthermore, a successful launch will boost the confidence of investors in the asset class, thus, resulting in a general rise in crypto prices.
Frequently Asked Questions
What is the Merge?
The Ethereum Merge is the transition from a proof-of-work model to a proof-of-stake mechanism. The Ethereum Mainnet (the execution layer) will be integrated with the Beacon Chain (the consensus layer).
When is the Merge happening?
The Merge process began on September 6, but the full Merge will most likely occur around September 15-16.
What happens to my ETH after the Merge?
The Merge will also merge all the transactional history of the network. Your ETH will therefore be transferred to the new Proof-of-Stake network.
Why is the Merge happening?
The transition from PoW to PoS is predicted to reduce the network’s energy consumption by approximately 99%. Ethereum intends to reduce the carbon footprints and hardware wastes produced during transaction validations.
Will there be downtime of the chain during the Merge?
The transition to proof-of-stake will happen with zero downtime.
Will the Merge result in lower transaction fees and high speeds?
The Merge will not expand network capacity. Thus, the transaction speed and cost will likely remain the same. Future upgrades may decrease transaction costs and increase speed.
What will ETH Merge do?
The Merge will transfer the data and assets from Ethereum’s Mainnet to the Beacon Chain, which will serve as the network’s prime blockchain.
What is Bellatrix upgrade?
Bellatrix is the last major upgrade that prepares the Beacon Chain for the final Ethereum Merge.
What happens to ETH when ETH 2 comes out?
There will be no new coins resulting from the Merge. After the Merge, there will only be one Ethereum Blockchain, with ETH still as its native coin.