The Merge on Ethereum has recently become one of the widely discussed topics in the cryptocurrency industry, amid the coming upgrade of the network. Aside from that, it is the most highly-anticipated event in the crypto industry as Ethereum’s mainnet will merge with its proof-of-stake system: the Beacon Chain. Someone interested in Ethereum should understand everything about it and what happens after it is completed.
The Merge will signal the end of the current proof-of-work (PoW) Ethereum and the birth of Ethereum 2.0, which will be based on a proof-of-stake consensus algorithm.
From PoW to PoS
Ethereum co-founder Vitalik Buterin has long been a supporter of the proof-of-stake consensus mechanism, as evidenced by his early and later writings. When compared to Ethereum’s prevailing resource-intensive PoW consensus system, PoS is expected to reduce network energy consumption by at least 99.95%.
The Merge on Ethereum aims to transition the Ethereum blockchain from its current proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model that is faster and more energy efficient. However, transferring the world’s second-largest blockchain from one system to another is an extremely complex, multi-step process. Each decision must be thoroughly evaluated.
Due to the main goal, developers are working to remove features that might slow down the transition to temporarily prevent users from withdrawing staked Ethereum once the Merge is complete. But even so, these will probably be addressed in a “clean up” upgrade that comes after the merge.
What some detractors are calling unjustified delays have been a laborious and meticulously implemented consolidation of the network through steady, incremental upgrades and forks across several key elements: the Beacon Chain, the Merge, and shard chains. This is because of the process that all Ethereum updates and decisions go through. To achieve Ethereum’s full potential for increased scalability, security, and sustainability, each of these depends on the others.
What is The Merge?
The Merge is the union of Ethereum’s new Beacon Chain proof-of-stake consensus layer and its current execution layer (the Mainnet that is used today). Instead of using energy-intensive mining, it uses staked ETH to secure the network. If successful, this will be a really exciting step toward achieving more scalability, better security, and sustainability goals of Ethereum.
Additionally, it’s crucial to keep in mind that the Beacon Chain initially shipped apart from Mainnet. While the Beacon Chain operates concurrently with proof-of-stake, the Ethereum Mainnet, with all of its accounts, balances, smart contracts, and blockchain state, continues to be secured by proof-of-work. When these two systems finally converge at the upcoming Merge, proof-of-stake will completely replace proof-of-work.
Consider Ethereum as a spacecraft that isn’t quite ready for an interstellar journey, to put it simply. The neighborhood has constructed a new engine and a fortified hull using the Beacon Chain. It’s a kind of period to hot-swap the new engine for the old mid-flight after extensive testing. As a result, the existing ship will incorporate the new, more effective engine, making it ready to travel some significant distances and take on the cosmos.
Proof-of-Stake (PoS) validators don’t have to mine blocks to keep the network running, unlike proof-of-work. Alternatively, they must make new blocks when they are selected and validate existing ones when they are not. Other contributors can vouch for the fact that the validity of the most recent block of transactions after one participant has verified it. The network adds a new block once there are sufficient attestations.
The network then distributes rewards in proportion to each validator’s stake in ether, the cryptocurrency used by the blockchain. To encourage good conduct, some penalties can result in validators losing some of their staked ETH if they become inactive or attest to fraudulent transactions.
Merging with Mainnet
Proof-of-work has protected Mainnet since its inception. It contains each transaction, smart contract, and balance since Ethereum’s launch in July 2015. This is the Ethereum blockchain that we are all familiar with. Developers have been working diligently on preparing Ethereum for a potential switch from proof-of-work to proof-of-stake throughout the platform’s existence. Following the creation of the Beacon Chain, Mainnet has been running concurrently with a different blockchain known as the Beacon Chain.
Transactions on the Mainnet have not been handled by the Beacon Chain. Instead, it has agreed on active validators and their account balances to reach a consensus on its state. The time for the Beacon Chain to agree on more is quickly approaching after extensive testing. Including execution layer transactions and account balances, the Beacon Chain will serve as the consensus engine for all network data following The Merge on Ethereum.
The Beacon Chain will now be the official mechanism for producing blocks as of the Merge. Valid blocks can no longer be created through mining. In its place, the proof-of-stake validators take on this responsibility and are in charge of processing all transactions’ validity and submitting blocks.
The entire transactional history of Ethereum will be merged as Mainnet and Beacon Chain are combined. Owners of Ethereum don’t need to take any action because their money is secure.
The Merge on Ethereum Aftermath
With this, Ethereum’s proof-of-work era will come to an end, ushering in a more resilient, environmentally friendly Ethereum. The conclusion of the merge will pave the way for additional scalability improvements not feasible under proof-of-work, advancing Ethereum toward achieving the full scale, security, and sustainability outlined in its Ethereum vision.
In the near future, The Surge, the Verge, the Purge, and the Splurge are four new phases that developers will work on after the Merge is finished and Ethereum’s newly adopted consensus layer begins to add new blocks to the Ethereum blockchain using the proof-of-stake consensus mechanism. These will keep enhancing the scalability and security of Ethereum’s proof-of-stake blockchain.
The Merge on Ethereum’s Relationship between the Upgrades
All of the Ethereum upgrades are connected in some way. This is how The Merge of Ethereum relates to the other upgrades.
The Merge on Ethereum and the Beacon Chain
The Beacon Chain is formally adopted as the new consensus layer to the existing Mainnet execution layer through the Merge. The Ethereum Mainnet will be secured by validators after The Merge, and mining based on proof-of-work will no longer be an acceptable way to produce blocks.
Instead, validating nodes that have staked ether for the right to take part in consensus will propose blocks. These improvements pave the way for later scalability improvements, such as sharding.
The Merge on Ethereum and the Shanghai upgrade
The Merge of Ethereum upgrade will not include some anticipated features, like the ability to withdraw staked ETH, to streamline and increase focus on a successful transition to proof-of-stake. The Merge of Ethereum, which will allow stakeholders to withdraw, is expected to be followed by the Shanghai upgrade.
The Merge on Ethereum and Sharding
Before The Merge of Ethereum, work on sharding was initially intended to address scalability. However, with the popularity of layer 2 scaling solutions, switching from proof-of-work to proof-of-stake via The Merge of Ethereum has become more important.
Initiatives for sharding are rapidly changing, but given the development and popularity of layer 2 technologies to scale transaction execution, the focus of sharding plans has shifted to determining the best method for distributing the burden of storing compressed call data from rollup contracts, enabling a rapid increase in network capacity. Without switching to proof-of-stake first, this would not be plausible.
Misconceptions about The Merge on Ethereum
“Staking 32 ETH is required to operate a node.”
Incorrect. Anyone may sync their own self-verified Ethereum copy at any time (i.e. run a node). No ETH is necessary.
“The Merge will lower gas prices.”
Untrue. The Merge won’t lower gas prices because it only modifies the consensus mechanism, not increases network capacity.
“After The Merge, transactions will move noticeably more quickly.”
Wrong. On layer 1, transaction speed will largely not change despite a few minor adjustments.
“Once The Merge takes place, an Ethereum holder can withdraw staked ETH.”
Incorrect. With The Merge on Ethereum, stake withdrawals are not yet possible. Staking withdrawals will be made possible by the next Shanghai upgrade.
“Validators won’t get any cash rewards in liquid ETH until the Shanghai upgrade when withdrawals are made possible.”
Completely untrue. Fee tips and MEV will be credited to the validator’s Mainnet account and made available right away.
“When withdrawals are allowed, all stakers will immediately quit the field.”
Wrong. Rate restrictions apply to validator exits for security purposes.
“After The Merge on Ethereum, the Staking APR is predicted to triple.”
Untrue. More recent projections call for an increase in APR post-merger that is closer to 50% rather than 200%.
“The chain will experience downtime as a result of the Merge.”
False. With no downtime, the Merge upgrade will switch to proof-of-stake.
As one of the biggest protocols will undergo a significant change, The Merge is unquestionably one of the most important moments in the history of cryptocurrencies. Since this is the most complicated change in ETH’s history, traders must keep in mind that it may still be a work in progress.