- The Merge, or Fusion, is the update that will lead to the transition of the Ethereum mainnet from Proof of Work to Proof of Stake which involves a change in the system that authenticates transactions on the Ethereum mainnet.
- Ethereum already has a Proof of Stake network called Beacon Chain launched in 2020 however it is not yet used to process transactions.
The Ethereum blockchain was conceived in 2013 by Vitalik Buterin, but it really went live on July 30, 2015, and today is scheduled for the biggest update to Ethereum since its launch in 2015, the so-called The Merge Ethereum.
Over the last 7 years, the crypto industry has evolved and the needs that a blockchain must satisfy have also changed. Ethereum was born using a consensus mechanism Proof of Work (PoW)But, as cryptocurrencies approached a tipping point of mainstream adoption, questions were raised about the scalability and sustainability of the network.
A Proof of Work blockchain tends to be more difficult to scale due to:
- The number of transactions that can be validated per block is limited
- Blocks are mined at a constant rate
From its beginnings, Ethereum considered Proof of Stake (PoS) as a mechanism that could allow the network to be much more scalable. This is where The Merge Ethereum comes into its own.
In the following guide you will find everything you need to know about what The Ethereum Merge is and its impact on the crypto community.
What is The Merge Ethereum?
The Merge, or the Fusion, is the upgrade that will lead to the transition of the Ethereum mainnet from Proof of Work to Proof of Stake. That is, fundamentally It involves a change to the system that authenticates transactions on the Ethereum mainnet.
In fact, the event is called The Merge because Ethereum already has a Proof of Stake network called Beacon Chain. It was launched in 2020, when users started staking ETH. However, it is not yet used to process transactions.
Beacon Chain is a separate blockchain that runs parallel to the mainnet. Until now, Beacon Chain has functioned as a testnet but this is about to change.
The Merge consists of the merger of the Beacon Chain, known as the Consensus layer, with the Ethereum Proof of Work mainnet, known as the Execution layer.
What will change?
As we have already said with The Merge, Ethereum will stop being a blockchain with a Proof of Work consensus mechanism and will become Proof of Stake.
in a simplified wayProof of Work is a consensus mechanism that leads miners to compete to solve puzzles in order to complete a block, while Proof of Stake does not use this mathematical puzzle, it is based on a deterministic probability that depends on the number of coins staking on the blockchain.
If you want to learn what Proof of Stake is, we invite you to read the guide specially designed by Bitcoin Mexico.
Due to the power consumption of PoW and the need to use special hardware for the task, mining has been limited to large-scale operators. This is a fundamental threat to decentralization and since Proof of Stake allows the use of commodity hardware, further decentralization is possible.
Then, The Merge implies that Ethereum will abandon traditional mining and move to a consensus mechanism where ETH owners will stake to become validators.
Fundamentally this change in how transactions are validated on Ethereum will have a major impact on Ethereum’s carbon footprint. Possibly the energy consumption of Ethereum will be reduced by 99.95%.
What is the future of Ethereum?
Ethereum’s move to a Proof of Stake mechanism is just the first step in a new era that aims to make Ethereum more scalable.
Even though there is no official announcement, the next Ethereum upgrades are in the works and will likely happen sometime in 2023. Some of these upgrades are:
- The Surge, includes update of Shanghai that will allow withdrawing the ETH blocked in the network, and, sharding, this update will allow Ethereum to increase its scalability by introducing shard chains to increase performance, reducing costs and times. Shanghai and Sharding are key updates for the future of Ethereum.
- TheVerge, will allow users to become network validators without storing a large amount of data
- ThePurge, will delete old network history
- TheSplurge, will bring with it updates to ensure the smooth operation of the Blockchain.
All the updates have in mind a future where Ethereum can take on a massive transaction load upon further adoption. Then, Although The Merge is a key milestone for Ethereum, it will not be the only monumental event.
Frequent questions
Do ETH Holders Need to Take Any Action Before and After The Merge?
No. Users who have ETH in their crypto wallet should not take any action when The Ethereum Merge occurs. Do not be fooled. You must not claim new tokens! Your ETH balance will remain exactly the same after the merger and you will be able to use the network as if nothing had changed.
As users and holders of ETH, you must not take any action before or after The Merge.
Only Ethereum software providers and node operators should update their software.
Will the Ethereum Merge make the network more scalable?
No. Once again it is essential not to lose sight of the fact that The Merge is a change in the consensus mechanism.
The Merge is the beginning of the era of a more sustainable and ecological Ethereum.
But fundamentally, it is the first of many updates to come that will aim to make Ethereum more scalable.
Will gas fees on Ethereum drop after The Merge?
No. The Ethereum Foundation clarified that transaction fees on the Ethereum network are not expected to change as a result of the Merger.
What will happen to the price of Ethereum?
It is not known for sure.
Per se, The Merge introduces a new form of utility for ETH in the form of Staking. However, there is no guarantee that this will increase the price of the cryptocurrency. Some experts assure that the market has already included the event in the current price of ETH.
One element to keep in mind is that changing the network’s consensus mechanism also changes the emission rates and how it is distributed.
With Proof of Work, a significant percentage of the ETH supply was used to reward miners for securing the network. Whereas, after the merger, with PoS mining rewards will no longer be given. This essentially translates to a roughly 90% net reduction in annual ETH issuance.
If the analysis follows the law of supply and demand, the Merger at some point could imply an increase in the price of ETH by reducing the supply in the market. However, there are many other factors at play that mean these changes can be both positive and negative.
Additionally, even though a variety of tests have been performed, there is a risk that the merge will fail or the network will be less secure after the upgrade. This could negatively impact the price of ETH.
When will it happen?
The Merger is estimated to occur on September 15, 2022. However, there is no fixed date.
It is necessary to take into account that each block in the Ethereum PoW network has an associated difficulty number. This represents how difficult it is to mine said block.
So instead of the Merger happening on a specific date, it will take place when the cumulative difficulty of all mined Ethereum blocks reaches a number determined by the core developers.
Will the network be paused?
No. It will be just another day in the crypto market, just with a major event that is likely to add volatility. However, the merge will occur instantly at the scheduled time.
I am staking ETH, what will happen after the merger?
It will continue to stake. The Ethereum Foundation clarified that the ETH Staked will remain locked until approximately 6 to 12 months after the Merge.
Will there be a Hard Fork? What does this mean?
The Merge implies that Ethereum miners will lose their jobs and as is often the case, there are reluctant forces to abandon the old mechanism. For this reason, plans for a Hard Fork have been announced. That is, a situation where the Blockchain diverges into two different changes.
There is a possibility that if you have ETH before the Merge, you can automatically receive a balance of tokens in these new forks. However, the process of claiming these tokens will differ depending on the chain.
Be careful! Volatility will most likely drive the market after the merger. Some forked ETH tokens may have value after the merger, but that can change quickly.
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