There's a lot of buzz happening right now in the crypto world because of the Ethereum Merge.
On September 15, 2022, a significant "merge" update happened. Ethereum, ranked second in terms of market capitalization in the cryptocurrency industry, transitioned from mining-based proof-of-work (PoW) blockchain which is employing energy-intensive technology to proof-of-stake (PoS) system which is a more sustainable structure.
The Ethereum Merge was not something that they did overnight. Years went into developing this technological upgrade according to market valuation. And this change is anticipated to create the technical groundwork for future Ethereum blockchain scalability enhancements.
There is so much to know about this new transition and the implications that go with it. If you wish to learn more about the Ethereum Merge and understand what it's all about, then brace yourselves and keep reading.
What is the Ethereum Merge?
Blockchain developers use Ethereum's infrastructure to build and deploy decentralized applications (dApps) and crypto-assets.
Before the Merge, Ethereum used the PoW technique to verify and add transactions made in the network to its blockchain. PoW includes bitcoin miners racing to find an answer to a challenging (and consequently energy-intensive) mathematical puzzle. Miners fought to validate transactions on the network.
The Ethereum Merge is undoubtedly a significant upgrade on its current blockchain consensus mechanism. Ethereum's original execution layer, the Mainnet, has now merged with the Beacon Chain, its proof-of-stake consensus layer. The network is secured using staked ETH instead of energy-intensive mining. As a result, Ethereum has become more scalable, secure, and sustainable.
As a result of the Merge, there will be a replacement of Ethereum miners by stakers, who will lock up ETH as compensation for the right to validate transactions. As a result, there is an expectation of reduced energy consumption on the network by more than 99.5%.
A further benefit of the Merge is that it lays the foundation for future Ethereum upgrades. One of the suggested network scalability enhancements, sharding, is only possible under the PoS consensus architecture.
Blockchain sharding reduces network congestion and increases transaction rates by splitting a blockchain into smaller, independent shard chains. Ethereum's ongoing development roadmap will implement sharding in subsequent phases.
What are "The Merge" implications for the environment?
It is clear that Ethereum itself will benefit significantly from the Merge, but the planet will benefit most.
Cryptocurrency's energy consumption is one of its biggest problems. To mine one Bitcoin, it requires a tremendous amount of energy. According to Digiconomist, one Bitcoin requires the same power a U.S. household uses over 47 days.
Although Bitcoin uses a significant amount of renewable energy, about 57% of it, according to the Bitcoin Mining Council, it still has an extensive carbon footprint.
Compared to proof-of-work validation, proof-of-stake validation consumes over 99% less energy, which is why climate-change advocates love it.
What are "The Merge" implications to its users and holders?
ETH users and holders, do not have to worry, for now. The Merge will not affect your wallet or funds, so no changes need to be made.
As a result of the switch to proof-of-stake, Ethereum's past from its birth has been preserved and unchanged. If you had money in your wallet before The Merge, you will still be able to access it after The Merge.
What are "The Merge" implications to the Ethereum fees?
Fortunately, The Merge does not affect Ethereum transaction fees. Danksharding and proto-danksharding may reduce Ethereum's high network fees in the future, but these updates are yet to come until 2023.
How will "The Merge" impact token prices of Ether (ETH)?
Right now, it's still vague. It is hard to forecast what will happen to the price of Ethereum's token after The Merge without knowing the variables.
The Merge has been a contentious topic in the cryptocurrency community recently, and no one is certain how it will effect Ether's price. There are two predictions, though, that people have in terms of movement in the Ether's price:
- The first is that fractioning the carbon footprint of Ether will make it easier for big companies to invest in and use Ether.
- The second is a bit more technical. Even successful mining operations have begun to struggle with electricity prices rising and crypto prices dropping. It is common for miners to sell most of the cryptocurrency they earn from mining to offset their costs. Due to miners offloading their Ether daily, it creates millions of dollars of sell pressure.
It is not certain, however, whether the Merge will increase the value of ETH. The market may have already factored in a boost. Some even argue that the Merge has already been priced in.
Some claim that the Merge has been in the works for seven years. In anticipation of its success, several significant investors have invested in Ethereum.
Whatever the case may be, only time will tell whether there will be changes in the token prices of Ether.
What are "The Merge" implications to Node operators and DApp developers?
If you're a DApp developer and Node operator, there are some things that you need to take note of after The Merge.
For DApp developers:
- As part of the Merge, there were changes to consensus, including:
- Structure of the block
- Timing of slots and blocks
- Changes in the Opcode
- Randomness sources on the chain
- The concept of a safe head and a finalized block
For Node operators:
- After The Merge, third-party endpoints to obtain execution data no longer work; you must run both consensus and execution clients.
- To securely communicate, you must authenticate consent clients and execute with a shared JWT secret.
You need to set up a fee recipient address to receive your earned transaction fee tips/MEV.
Nodes that do not sync and authenticate both layers will appear offline until you complete the first two items.
In the absence of a fee recipient, your validator will still function as usual, but any unburnt fee tips will be lost, as well as any MEV earned in blocks that your validator proposes otherwise.
In the months and years following the Merge, The open-source network's fees, performance, and security will continue to be improved by Ethereum's core developers.
As a result of the Merge, developers will focus on sharding, which spreads network activity over numerous "shards" (similar to lanes on a freeway) in an effort to boost Ethereum's transaction throughput and reduce its costs.
Proposer builder separation (PBS), another component of the proposals, will distinguish between "builders," who add transactions to blocks, and "proposers," who submit those transactions for approval. The proposed fix for Ethereum's maximal extractable value (MEV) issue is PBS.