The crypto world has been looking forward to the huge update that is happening on Ethereum called The Merge. Ethereum’s transition from proof-of-work (PoW) to proof-of-stake (PoS) is scheduled around September 15. But until now there are many myths and misunderstandings that arise around this issue. Here are 10 things you need to know about The Merge.
10 Things to Know About The Ethereum Merge
What is The ETH Merge?
The Merge is the shift of the Ethereum network from proof-of-work (PoW) to a proof-of-stake (PoS) system. PoS is also referred to as a “consensus mechanism” for authenticating crypto transactions. The new PoS system will replace the PoW system which has been known as a more energy intensive process.
Ethereum actually has a PoS network called the Beacon Chain created in 2022, but it is not yet used to process transactions. Ethereum’s full transition to PoS requires merging the Beacon Chain referred to as the “Consensus” layer with Ethereum’s PoW mainnet referred to as the “Execution” layer.
When Will The Merge Happen?
It is predicted that the Merge will happen around September 15, 2022.
During the process of the Merge, miners will work towards something called the “total terminal difficulty” (TTD). Instead on starting on a specific date, the Merge will take effect once the the miners hit a predefined TTD number. . Once a block with total difficulty larger than TTD is produced, it’s considered the final PoW block.
In August, Ethereum core developers set the TTD at 58,750,000,000,000,000,000,000, which will be reached around September 14 or 15. We only have estimates as block difficulty and issue rates vary over time.
Difference between Proof-of-Stake (PoW) and Proof-of-Work (PoW)
Proof-of-stake (PoS) and proof-of-work (PoW) differ in how they decide who has the right to record the next “block” of transactions on the network. In PoW system, Ethereum miners compete to issue blocks by competing to solve cryptographic puzzles, just like in Bitcoin.
In the PoS system, validators will stake at least 32 ether with a randomly selected network to create a block. The more ether at stake, the more likely he is to be selected.
In both systems, miners/validators who win a block are rewarded with a mix of transaction fees and freshly minted ether (ETH). PoS validators also receive rewards for performing other activities to help secure the network.
The main problem for PoW system right now is due to its high intensive power usage. Switching to a PoS system is said to reduce power usage by 99.95% which will make many environmentalist and countries happier.
Reduced Ethereum Fees After The Merge?
ETH transaction fees are not expected to change as a result of the Merge. One of the future updates called sharding is one way Ethereum hopes to reduce fees. This would split the network into smaller pieces and distribute data more efficiently. It is expected to come in 2023.
For now, the way to reduce gas fee is using the layer-2 rollups. This compress transactions into batches before sending them to the main layer which is more pricey. Third party networks such as Arbitrum and Optimism will help lower the cost.
Will Ethereum Transaction Speed Increase After The Merge?
On average, Eth blocks are issued once every 13 or 14 seconds in today’s proof-of-work (PoW) system. After merging, proof-of-stake (PoS) blocks will be issued at regular 12-second intervals. Many user may not noticed the improvement but this is still way faster than Bitcoin where the average block mined is around 10 minutes. Blockchain networks such as Solana and Avalanche are still faster than Eth even after the Merge.
Just like transaction fees, those looking for better transaction speeds need to look at Ethereum third-party rollups.
The Merge Increase Price of Ether (ETH)?
With so many factors that may or could happen, it is impossible to predict what will happen to the price of the Ethereum token as a result of the Merge.
The Merge is a massive update to the network’s core technology that can change the outlook of Ethereum and also crypto technology. PoS will also introduce a new form of utility for Ethereum native ether tokens (ETH) in the form of staking.
Even though it will kind of help ease the environmental impact, the Merge is not a guarantee to increase the price of ETH. The Merge will also introduce changes to the rate at which ether is emitted and how ether is distributed. This change can be positive or negative depending on who you ask.
Do Ethereum Users or Holders Need To Take Any Action After The Merge?
No. Your balance will remain exactly the same after the Merge, and you will be able to continue using the network as if nothing had changed.
While Ethereum users do not need to take any action during the Merge, Ethereum software providers and node operators need to update their software to ensure they are communicating with the latest version of the network.
For people who stake their ether will also still be able to withdraw after The Merge. Staked ether will remain locked with the network for up to approximately six to 12 months after the Merge. In that time, those who had staked their own ether will be able to withdraw their stake, along with any rewards earned.
Can The Merge fail?
Yes there is a possibility that it may fail but it seems highly unlikely.
Ethereum’s transition from PoW to PoS will mark the first experiment of its kind. If the Merge is successful, it would represent a great achievement in engineering and human coordination. If it failed, it could mean erasing hundreds of bullions of dollars off the market, as not only Ether will fall but other tokens built on the ETH network.
The Merge will occur as soon as the last PoW block is mined. From then on, the network will continue to operate with the issuance of the first PoS block. Ethereum users do not need to take any action to upgrade to a PoS chain.
What Happened To PoW Miners After The Merge?
After The Merge, Ethereum miners will not be able to mine new blocks on the network. They will also go from mining to ‘staking ether’ to get rewards on the new PoS network. Although there is the Ethereum Classic network which they can still do mining work as it still uses PoW.
After the Ethereum Merge, some miners are also planning to create a “forked” version of the proof-of-work blockchain. Which is essentially, a clone of the blockchain that is still running using the old miner-friendly system. It’s unclear if this chain will gain enough traction to be profitable for miners in the long term.
What is the Ethereum Roadmap after The Merge?
After the Merge, Ethereum core developers will continue to work on the open source network as they did before, with increased network costs, speed and security slated for the months and years ahead.
One focus for developers is sharding, which aims to expand Ethereum transaction throughput and reduce its costs by spreading network activity across multiple ‘shards’.
The roadmap also features a Proposer / Builder Separation (PBS), which will separate “builders” who add transactions to the block from “proposers” who submit them for approval from the wider network. PBS was proposed as a way to help address Ethereum’s maximum extractable value (MEV) issue.