- The Merge prepares Ethereum for future improvements that will increase transaction speeds to more than 100,000 per second, making it faster and cheaper to use.
Ethereum, the second-largest cryptocurrency by market cap, is poised to undergo a historic software upgrade.
The upgrade, titled “The Merge,” has been postponed numerous times over the past two years. It will lower the blockchain’s power consumption by more than 99%, making the entire blockchain more energy efficient. This upgrade is now due on September 15.
The Merge’s priority is to replace Ethereum’s “proof of work,” or PoW verification method, with “proof of stake,” or PoS. It’s a part of the plan to increase Ethereum’s efficiency, scalability, and speed, which will be dubbed “Ethereum 2.0, a series of upgrades to Ethereum.
Ethereum portrays a massive developer ecosystem and is a doorway to Web3, also known as the decentralized web. It allows peer-to-peer financial transactions without the need for mediators or centralized entities. It uses smart contracts, software that self-executes once certain conditions occur. With this, developers can design Decentralized Applications (dapps) for token exchanges, decentralized finance, securities trading, interest-generation, gaming, and more.
Merge’s proponents think that making Ethereum more energy-efficient will encourage developers – those on the fence – to join because of its potential environmental impact to join Web3. The Merge also prepares Ethereum for future improvements that will increase transaction speeds to more than 100,000 per second, making it faster and cheaper to use. This greater scalability will open new options for Ethereum.
This upgrade is named the Merge because it will merge a running proof-of-stake Ethereum network, known as the Beacon Chain, with the main Ethereum blockchain and replace its proof-of-work engine with the proof-of-stake engine while it’s still running. This is like replacing an airplane engine while flying; if successful, it will go down in blockchain history.
The Merge substantially affects an essential component of Ethereum. Therefore, the blockchain faces significant risk as the event approaches. At the same time, the core team has been working on this for years and has delayed it several times to eliminate anything that could go wrong. According to the blockchain developers, PoS is more secure and is employed in several other significant blockchains, such as Tezos, Avalanche, and Solana.
Ethereum is moving to PoS, but it’s unlikely that bitcoin will follow suit. According to critics, PoW is the major way that bitcoin remains decentralized, and switching to PoS will mean too much shift of validation resources. Some point out how Solana, a major blockchain, suffered various disruptions caused by bugs and DDoS attacks, causing validators to lose consensus.
Critics of the switch to PoS include cryptocurrency miners who have invested billions of dollars into computing equipment dedicated to PoW and may be unemployed soon or forced to switch to other blockchains to make money.
To secure the network currently, Ethereum transactions are validated across the network in a decentralized way using proof of work, like other cryptocurrencies such as bitcoin.
This is a consensus mechanism where users, known as “Miners,” employ powerful computers to solve complicated math riddles and validate new transactions. The first miner to solve the riddle adds the record of the transactions to the blockchain in a block and is rewarded with the blockchain’s native coin in addition to the transaction fees users pay.
PoW is energy-intensive because miners compete with one another to solve complicated puzzles, and only one can win per block. Meaning all the non-winners’ energy is wasted. This approach is considered wasteful, and the total energy used is the same, no matter how many transactions flow through the network per block.
Electricity concerns vanish because the winner is often up against hundreds of thousands of other miners for that winning block each time. Bitcoin rewards 6.5 bitcoins, or USD 132,000, and Ethereum rewards two ethers, or USD 3,200.
According to Digiconomist, Ethereum consumes 78.6 terawatt-hours of electricity each year conducting these computations, or ideally, the energy consumed by Chile and Hong Kong’s carbon footprint. After the Merge, energy usage should decline by 99.95%, to below 0.01 terawatt-hours a year.
Bitcoin mining is even more energy-intensive than Argentina. It clocks 131.6 terawatt-hours per year. Bitcoin and cryptocurrency mines worldwide are under watchdog and regulatory scrutiny, notably in New York, which banned nonrenewable proof-of-work mining licenses.
PoS will turn this on its head by eliminating complex puzzles and powerful computers from the network, allowing individual users to “stake,” or lock up, their cryptocurrency to become validators. Validators store data, process transactions, and add new blocks to the blockchain, which prevents fraudulent transactions.
In return for staking coins, validators receive interest on their staked coins in the form of ether. This payment provides validators with a passive income opportunity and encourages them to secure blockchain transactions on the blockchain.
These consensus methods aim to prevent a bad actor from gaining network control by controlling enough of the network. To cite an example, in a bid to fake a transaction on the Bitcoin or Ethereum blockchain, an attacker would need to control more than 51% of the network’s PoW processing power. This would indeed be a significant amount of computing power.
Under PoS, an overwhelming 51% of the network would be expensive because the cost to become a validator is 32 ether, or USD 50,000. As a result, the total ether staked by validators to secure the network, the harder it is for any single attacker to reach the needed 51%. With the reward incentive encouraging more validators to stake their currencies, it’s expected that it will be harder to attack Ethereum.
Merge and miners
The move away from proof-of-work could put many Ethereum miners out of work. Maybe. Some hardcore miners have given their views on the upcoming upgrade and have concluded that they would not want to give up billions of mining equipment.
They could switch to another proof-of-work chain like Ethereum Classic. This is perhaps the oldest Ethereum hard work that took place in 2016 when the Ethereum Decentralized Autonomous Organization was hacked for USD 55 million, causing this hard fork. When Ethereum becomes proof of stake, it will remain proof of work.
Crypto journalist Colin Wu projected that the Merge might displace USD 5 billion worth of Ethereum mining equipment in the form of graphics cards and application-specific integrated circuits or ASIC mining machines, mostly from Chinese miners.
Chandler Guo, a Chinese Ethereum miner, said the Merge would hurt many miners. He expected the change would lead to many Ethereum forks allowing PoW mining and advocated miners forming their own. He asked for the development of ETHPOW or ETHW, a blockchain fork from Ethereum, after the Merge so that they could continue using their equipment.
Various exchanges, including Poloniex and BitMEX, have begun listing tokens of this yet-undeveloped Ethereum PoW fork as ETHW futures.
Talking about the Ethereum Classic ecosystem, it has the support of Bitmain’s cryptocurrency mining platform Antpool, which has given USD 10 million to Ethereum Classic. Several miners have moved their rigs to the network in preparation for the Merge.
Developers’ post-Merge future
The biggest takeaway is that the Merge will have little impact on developers. Their apps will keep working as before. It will provide the foundation for upgrades that will relieve network congestion and boost scalability in the future.