The Etherium Merge: A Game Changer
What does Ethereum’s recent shift from proof-of-work consensus mechanism to a proof-of-stake model mean?
In September of 2022, Ethereum transitioned from a proof-of-work to proof-of-stake and a more environmentally friendly system – dubbed The Merge. The merging of the Ethereum Mainnet with the Beacon Chain has been described as “the most significant upgrade in the history of blockchain tech”. This isn’t an overstatement, as it represents a fundamental shift in the way ETH blockchain operates.
The Basics of the Merge
The anticipated ETH upgrade’s primary goal is to enhance its security and manageability by moving from a proof-of-work to a proof-of-stake consensus mechanism. A proof-of-work consensus has been used to power Bitcoin since its inception. It’s a battle between computers (nodes) on who will be first to solve a mathematical puzzle. This is achieved through brute-force computation, without any known technique that increases the probability of solving it. On the other hand, the proof-of-stake consensus mechanism doesn’t depend on brute-force computing. Instead, node operators (validators) stake the cryptocurrency.
After going through various technical issues, the Ethereum community launched the “Beacon Chain” in December of 2020 to test out the proof-of-stake consensus mechanism and run it parallel to the primary ETH chain. The Beacon Chain consists of nearly 500,000 validators who hold over $20 billion worth of stakes in Ether. With the merge in place, proof-of-work will cease to exist in the Ethereum main chain.
The integration took place on September 15, 2022, at 2:45 am EST. When Ethereum’s mainnet reached “terminal total difficulty,” meaning that ETH mining was no longer possible, the network automatically switched to using proof-of-stake consensus.
The merge took less than 15 minutes to finalize, and the network confirmed its success by proposing and going ahead with new transition blocks under the proof-of-stake consensus mechanism. Ethereum’s network only missed one block during the transition and, after just under 13 minutes, it finally reached completion.
The cryptocurrency markets were closed for ETH and Ethereum-related assets during the merger, as a precautionary measure.
How the Merge Will Impact Blockchain Technology
The Merge significantly reduces the amount of power Ethereum uses, making it about 99% more energy-efficient.
How much power has the Ethereum blockchain consumed thus far? Approximately the same amount as an average country in Europe. If the Merge is successful, annual power consumption for operating the Ethereum blockchain will drop 99.9 percent, from 112 terawatt hours to 0.04 per year. As a result, the Ethereum blockchain will become drastically more ecologically sustainable. In addition, the expense of operating the blockchain (paying for electricity) will be greatly reduced.
A by-product of the increased access and lower energy consumption will be reduced centralization. Until now, proof-of-work blockchains had a higher degree of centralization because the miners who compete for rewards pool their resources together in consortiums. If the consortium wins, the prize is split among the members of the alliance.
The integration will not alter the history of Ethereum. You’ll still be able to access block explorers such as Etherscan and get a comprehensive record of the blockchain.
If you’re an ETH miner, the merge will leave you without a job, meaning you’ll have to mine elsewhere. As a result, larger mining companies have been forced to reconsider their operations, while many miners will shift to alternative proof-of-work blockchains.
Ethereum’s blockchain is the infrastructure for many applications and cryptocurrencies. This means that in order to use these services, you’ll need some Ethereum to pay for transactions. The amount of ETH needed varies depending on the service used.
Due to the network’s notoriously high fees, some people have been turned away from the blockchain completely, and instead looked towards alternatives such as Solana, Avalanche, and Tezos. Many had hoped that the transition to proof-of-stake would reduce Ethereum’s fees, which are incurred when transactions are made. At the moment, this won’t happen.
What Comes Next
You’ll be able to utilize proof of stake instead of proof of work for smart contracts after the merger. You’ll also be able to retrieve any Ethereum 2.0 stakes you’ve put up. However, you will only be able to do this after the Merge. You’ll have to wait for yet another upgrade on the Ethereum blockchain, which the Ethereum Foundation, the organization in charge of its development, predicts will happen “shortly” following the merger.
Withdrawals will be available as soon as the Shanghai upgrade is complete. Experts anticipate that implementation will occur in 2023.
The Shanghai upgrade is only one of many planned upgrades to the Ethereum blockchain. Ethereum is expected to go through the “surge,” “verge,” and then the “purge” after Shanghai:
The term “surge” refers to the adoption of a software technology known as “sharding,” which is predicted to raise Ethereum’s current maximum transaction processing rate from 15 to 20 transactions per second to somewhere near 100,000.
Next, the verge is looking to incorporate a mathematical proof called “Verkle trees.” This would allow nodes on the blockchain to function without having to download the entire history of transactions on the chain.
As its name suggests, the Purge is designed to get rid of old, unused data on the Ethereum blockchain that’s taking up space and slowing down transaction processing. This should help increase Ethereum’s transaction processing speed even further.
These three upgrades working together will create a blockchain that is smaller, simpler to use, and much quicker.
The Merge is a tremendous change to the Ethereum blockchain and is the biggest alteration in a blockchain’s overall operation in its history. There will almost certainly be unexpected, and even far-reaching, consequences of the Merge, yet to be discovered.