What To Know About The Ethereum Merge

The merge is the long-awaited shift by Ethereum from proof of work to proof of stake. The merge that Vitalik Buterin, the Ethereum founder first spoke about 8 years ago is set to finally happen on the 16th of September 2022. Transitioning from a more energy-intensive consensus model to a lesser one is a very complicated and sensitive process and the first of its kind in the blockchain world. 

Ethereum has shifted the merge date and defused the “difficulty bomb” they planned to launch if the merge doesn’t happen for the 6th time. This merge would mean a lot for both Ethereum and the crypto world at large and cannot go wrong.

Let’s take a deeper look at the merge, its rationale, implications, and why it’s relevant to the crypto world. But before then, what’s Ethereum merging with its main net—the Ethereum we know today.

The Beacon Chain

The Beacon Chain is the Ethereum Proof of stake consensus layer set to be merged with the main net. It currently exists as a separate chain and will merge with the main net. There are currently 14, 128, 577 total Eth staked and 418, 019 total validators. Why does Ethereum need to make the switch from PoW to this PoS?

Proof Of Stake 

The blockchain is a decentralized database system. In the absence of central control, there has to be a consensus mechanism for the verification of transactions and decision-making. The proof of stake is one such mechanism. 

It works by validators who pull their resources in a pool and get picked by a lottery-like system to validate transactions and earn Eth rewards. Ethereum’s proof of stake which it’ll merge to its main net is already available as the Beacon chain.  

For Ethereum, you need 32eth or less to be a validator, and is considered by some as a high entry barrier. This may be true but mining is way more expensive. You need your mobile phone or home computer to be an Ethereum miner. It’s not the case with mining. The current Ethereum PoW miners are likely to turn into validators. 

Why Is The Merge Important?

The Ethereum blockchain is the second biggest in the world and powers thousands of blockchain-based applications. With the Proof of Work validation model, the network consumes a lot of energy. Its energy consumption is “comparable to that of the Netherlands and its carbon emission equivalent to that of Singapore”, according to ethereum.org. This has a very dangerous environmental impact. The merge will reduce this energy consumption by over 99.95%. And this will do a lot to save the face of crypto as a dangerous invention doing more harm than good. 

Currently, gas fees on Ethereum are high and this is because of network congestion. The proof of work model does not allow for sharding. Sharding is the distribution of transaction processing amongst nodes in a blockchain to enable transactions to process faster, and cheaper. Instead of putting all the chains to work on each transaction, sharding divides the database horizontally, hence, decongesting the blockchain. 

It’s often said that Ethereum is good for minting low-frequency NFTs. And Polygon is good for the opposite (7000m-10000 NFTs). This is because of the currently impaired Ethereum scaling and high costs. With the merge laying the foundation for sharding through layer2 rollups, Ethereum hopes for a future more scalable starting from 2023. Although Steve Goldfeder, founder of Arbitrum claims to scale is a long-term issue and no single update will solve it, the merge would usher in other significant updates in the future. 

The sharding following up the merge is great because Ethereum may experience a rise in users after the merge and gas fees may tend to rise again. Layer 2 solutions like optimism and Arbitrum will help reduce the gas fees users pay. 

For blockchains, typically, decentralization, scalability, and security cannot always go hand-in-hand. One has to be sacrificed. For any blockchain to achieve the three it needs to have secondary/hybrid integrations into its current system. It’s why Bitcoin has the Lightning network and now Ethereum will merge its layer 1 (main net) with layer 2 (Beacon chain). 

If you’ve been wondering what will happen to Eth prices, the merge will make Eth deflationary. The total supply will reduce because of the EIP-1599 proposal to burn tokens that would rather have been given to miners. Eth is currently inflationary and has no max supply. Going by the law of economics, the price should experience a surge.

Any technology that becomes mainstream has some scalability potential. It’s why novel inventions don’t get past the headlines and we never see them in real life. With the Ethereum merge very much looking up with the Ropstein, Sepolia now the Goerli merges successful, positive sentiments will circulate the market and prices are likely to jump. It’ll also provide a basis for more mainstream solutions due to their scalability derived from Ethereum 

In June, prices shot up after the date of the merge was announced. And after the Goerli merge was successful, prices shot up by 14%. This has also inspired sentiments that the hype might have just faded already. But Hayes, BitMex founder, and Ethereum derivatives traders are betting that Eth could go as high as $5K after the merge. 

Skepticisms About The Ethereum Merge 

The Ethereum merge would leave the $19billion industry finding its feet in a changing blockchain space. Some of the blockchain space. Mining pools are beginning to adjust. While Ethermine, the largest Ethereum mining pool has announced a staking service, Luxor Technology has put together an advocacy group and also invested more in Ethereum mining despite the intended upgrades to PoW. It stated that the PoS hasn’t been properly tested.

Chandler Guo leading a team of opposers says  “It’s flying a jet and changing the engine in the sky”. Asides from this, there are also rumors that Ethereum miners might try to fork Ethereum so the system doesn’t run as it should.  

Some have also said the merge will not reduce the gas fees but as Steve Goldfeder says  “It's … sort of almost a cat and mouse game, right? You scale to a point that we can handle the next 100 million users. But then, you know, they come and you say, how do we get the next billion users and 2 billion users and 10 billion users and ultimately, you have to keep advancing,” Coin Desk reported.

Each level presents new levels of challenges that needs solutions. If this merge is successful, it definitely will mean newer obstacles but doesn’t diminish its status as a great milestone.

Conclusion

Only the next few days will properly tell what the future holds for the Ethereum network. Its success however cannot be determined by how much prices surge but by the benefits, it’ll offer to the thousands of blockchain running on it should it be successful. Let’s sit tight through the upcoming bellatrix upgrade which will happen on the 6th of September before the main event— The Merge.