ETHEREUM MERGE: WHAT HOLDERS AND USERS SHOULD DO?

In what’s likely to be the most largely anticipated event within the cryptocurrency community in 2022, Ethereum’s mainnet is set to merge with the Beacon Chain’s proof-of-stake system.

It will mark the very end of the proof-of-work Ethereum as we know today and give birth to Ethereum 2.0 – the version that will be based on a proof-of-stake consensus algorithm.

To shed some more clarity and understanding, let’s dive a bit deeper

ETHEREUM: PROOF OF WORK VS PROOF OF STAKE

You presumably may have heard of both proof-of-stake and proof-of-work.

These two concepts are essential to cryptocurrency transactions and security. They are key components of blockchain technology and how it works.

Proof-of-stake and proof-of-work are known as consensus mechanisms.

Both, in different ways, ensure users are honest with transactions, through incentivizing good actors and making it extremely difficult for bad actors.

In proof of stake, validators are chosen based on a set of rules depending on the "stake" they have in the blockchain, meaning how much of that token they commit to locking up to have a chance to be chosen as a validator to verify transaction while In proof-of-work, verifying cryptocurrency transactions is done through mining. 

 Energy consumption is also much higher in mining than with proof of stake.

The bitcoin network alone which uses proof of work, for example, uses as much power as an entire country like Malaysia or Sweden, according to data from the Cambridge Center for Alternative Finance. 

Part of that has to do with the fact that PoW requires more advanced equipment which consumes energy.

Proof of stake requires much less energy and no specialized equipment.

 As a result, it is considered a more environmentally-friendly alternative to proof of work and reduces the risk of companies with huge computing power taking control of over half of the validator nodes, leading to much higher security threats to Ethereum. 

WHAT AND WHY OF THE MERGE?

The Ethereum Foundation says its switch to PoS will result in a network that uses nearly 100% less energy.

“The Merge” is a term, that’s used to describe the transition of Ethereum from a proof-of-work consensus algorithm to one that uses proof-of-stake.

It represents the joining of the existing execution layer of Ethereum (the mainnet we use today) with its new proof-of-stake consensus layer – the Beacon Chain.”

This is designed to take care of the energy-intensive mining process while also securing the network using staked ETH. The move is expected to provide for more security, sustainability, and scalability to Ethereum’s network.

This sets the stage for future scaling upgrades including sharding.

The Merge will reduce Ethereum's energy consumption by ~99.95

THE BEACON CHAIN: ETHEREUM 2.0’S PROCESSING ENGINE

The Beacon Chain is the cornerstone of Ethereum 2.0’s architecture. It exists as a separate blockchain to Ethereum’s network, and it runs in parallel. It hasn’t been processing any transactions on the mainnet, but it has been reaching consensus on its own. This happens by agreeing on active validators and their account balances.

Put in simple words, the Beacon Chain has so far worked as a de-facto testnet for Ethereum 2.0, but all that is about to change with the Merge.

The Merge represents the moment where the two systems (Ethereum’s current mainnet running on PoW and the Beacon Chain running on PoS) come together. This will see the PoW consensus algorithm replaced by proof-of-stake – permanently.

WHEN IS THE MERGE?

It’s worth noting that Ethereum 2.0 has been in the making for years, with the exact date of “The Merge” always looking like something set to happen in the not-so-clear distant future.

All this came to an end on July 14th, 2022, when a member of the Ethereum Foundation shared a timesheet with what was later described as a “soft” schedule for the Merge.

As seen in the image above, The Merge is scheduled to take place on September 19th, 2022, barring any unforeseen events, including “the Goerli Merge not blowing up.”

PREPARATION FOR THE MERGE: WHAT HOLDERS AND USERS SHOULD DO?

This is one of the biggest events in the history of the entire cryptocurrency industry, and as such, it is likely that many bad actors will try to exploit it and scam innocent people out of their money.

This is why it’s imperative to know that users and holders of ETH don’t need to do anything with their funds or with their wallets before the Merge. 

The entire history of Ethereum – dating back to its genesis – will remain unaltered and intact after the transition to PoS. All funds held in a wallet will still be accessible after the Merge, and there is no action required to upgrade on behalf of users and holders. 

Moreover, as part of the preparation for regular users, it’s imperative to read about some of the most common scams that are related to Ethereum 2.0.

ETHEREUM AFTER THE MERGE: EXCITING TIMES AHEAD FOR ETHEREUM

One of the promises of Ethereum 2.0 is that of scaling, and Vitalik Buterin claimed that the network will be able to process 100,000 transactions per second.

However, The Merge is just the first stage of five from the protocol’s incoming development: The Merge, The Surge, The Verge, The Purge and The Splurge.

Shard chains, scalability, security, and accessibility will all be positively influenced by the upgrade.

Significant implications for the network, but the critical considerations include:

▪         No history will be lost

▪         Funds are safe

▪         No more mining of ETH

TOP 5 MISCONCEPTIONS ABOUT THE MERGE

As it is with all highly-anticipated and big events, there are plenty of misconceptions running rampant within the cryptocurrency community. Here are five of the most common one.

It requires staking 32 ETH to run a node.

There are two types of nodes on the Ethereum network – one that can propose blocks and one that can’t. Those that are not required to commit ETH do not propose blocks but they are also integral to the network’s security because they hold all block proposers accountable.

Gas fees will fall down after the Merge.

The Merge will change the overall consensus algorithm and will not expand the network capacity – this is why it won’t result in lower gas fees. However, there are scaling solutions in development that are designed to do just that, most of which are targeted at layer 2s.

Transaction speed will increase greatly.

The transaction speed on the mainnet will remain relatively the same even after the merge, although there are some slight changes.

The Merge will result in overall network downtime.

The Merge upgrade is designed in a way where there will be zero downtime. The network should keep functioning as intended at all times.

All staked ETH will be withdrawn after the Merge.

Validators exiting the network are rate limited. This is done out of security reasons. There are limitations set in place that allow for roughly 43,200 ETH to exit per day. There’s more than 13 million ETH staked at the time of this writing.

CONCLUSION

All in all, The Merge is without a doubt one of the most considerable moments in the history of cryptocurrencies as one of the largest protocols will go through a monumental change. All of this became largely exacerbated now that there’s a timeline in place, albeit “soft.”