By
Dimitar Bogdanov
July 7, 2022
4 Min Read
As we’re a few days into the second half of the year, we’re inching closer to what promises to be the single biggest development in the Web3 and crypto space of the past few years - the Ethereum Merge. It is a massive upgrade that is meant to take Ethereum from a Proof-of-Work network to a Proof-of Stake one. The move is expected to have a major impact on the Ethereum network, with massive improvements expected to come as a result of the changes.
On these pages, we’ve already talked about the upgrade and the effort to create a more scalable, efficient and environmentally friendly Web3 platform. But as the upgrade comes closer and closer, now is the perfect time to examine in detail how work on the project is progressing and how The Merge is meant to solve some of Ethereum’s biggest problems.
Ethereum’s transition from Proof-of-Work to Proof-of-Stake officially began with the launch of the Beacon Chain in late 2020. That marked the beginning of Phase 0 of what was back then still known as the Eth2, or Ethereum 2.0, upgrade. And while Eth2 moniker was retired earlier this year, the plan remains the same - unite mainnet Ethereum and the Beacon Chain - or as they are now referred to as execution layer and consensus layer, respectively - into one PoS chain capable of running smart contracts. In other words, mainnet Ethereum will handle the smart contract execution functionality of the chain while The Beacon Chain will provide the consensus.
Since its launch, the Beacon Chain hasn’t validated transactions on mainnet Ethereum. Instead, it has been reaching consensus on its own state by agreeing on active validators and their balances. This will change after the Ethereum Merge, when the Beacon Chain will become responsible for processing transactions on the mainnet
Consensus is accomplished by validators which have to stake 32 ETH each in order to become eligible to validate blocks. Currently, nearly 13 million ETH have been staked in the Beacon Chain across some 405,000 active validator accounts. This level of participation suggests that confidence in the Merge and Ethereum’s transition to PoS is high. The feat is especially impressive because validators still don't have the ability to withdraw their stakes.
As we mentioned above, one major consequence of the Ethereum Merge is the shift from a power-hungry PoW consensus mechanism to a much more energy-efficient PoS. The PoW the validation process is performed by miners who, by design, have to use a lot of computational power in order to produce the necessary proofs that ensure the validity of new blocks that have been added to the blockchain.
That need for raw computational power is where the energy intensive nature of PoW stems from. But PoS eliminates that need as its staking requirement means that validators have vested interest in the success of the networks. And because malicious behavior can lead to severe penalties on their stakes, validators are incentivized to perform their duties efficiently and responsibly.
Another benefit of the Ethereum Merge is that the upgrade will lead to drastic reduction in new ETH supply on the network. With miners gone, mining rewards for adding new blocks will also become a thing of the past. Validators will still be eligible for staking rewards and fee tips, but those will not have as much of an effect. According to some estimates, the supply of new ETH will drop by around 90%. This, coupled with the fee-burning mechanism that was introduced last year via the EIP-1559, means that Ethereum is poised to become a deflationary cryptocurrency.
As per Ethereum.org, the Merge is expected to happen in Q3/Q4 of this year. Assuming that the event takes place toward the tail end of that expected time frame, some two years will have passed since the launch of the Beacon Chain. So why does it take so long? Well, given the massive changes the Ethereum Merge is set to introduce to the protocol and the fact that it has to happen without disrupting normal operations on the mainnet, the long transition is hardly surprising. Most importantly, the upgrade needs to be stable and secure so that it doesn’t introduce potential exploits and other vulnerabilities to the new Ethereum platform.
So, in order to ensure that Tthe Merge would go as smoothly as possible, the upgrade has been undergoing a lengthy period of rigorous testing and preparations. As part of this process, The Merge has to undergo 20 ‘shadow forks’ on closed testnets and three launches on public testnets.
Most recently, The Merge took a major step toward going live.Yesterday, July 6, the upgrade was successfully deployed to the Sepolia public testnet. The move follows the deployment to Ropsten in June, which means that it’s now only the Goerli testnet that remains to make the shift to PoS. In terms of shadow forks, where small-scale testing occurs, we’re already at eight successfully implemented forks. The progress that’s so far been made suggests that the expectations for a 2022 release may be justified.
Since we’re talking about The Merge, we should mention some of the biggest misconceptions about the upgrade. For starters, The Merge is not meant to reduce gas fees on Ethereum. The upgrade’s sole purpose is to introduce PoS on Ethereum and by doing so to usher in a new, more sustainable era for the biggest dApp platform on the market.
Secondly, The Merge is not expected to result in a meaningful improvement of transaction speed on Layer 1, although some slight change may occur after the upgrade goes live.
Finally, people will not be required to stake 32 ETH in order to run Ethereum nodes. The staking requirement is specifically for people who want to be validators on the network.
For more misconceptions regarding The Merge, we recommend checking out the relevant information on Ethereum.org.
If you’ve been following the Eth2 project closely, you probably remember that, according to an earlier version of the project’s roadmap, a ‘Sharding’ phase was supposed to take place before The Merge. So why is this no longer the plan?
Well, sharding was proposed as a scaling solution for the Ethereum network - essentially, it would introduce 64 shard chains meant to reduce the burden on the mainnet. However, since then, the growing prominence of Layer 2 scaling solutions such as rollups and sidechains (most notably Polygon) has afforded more time for the implementation of sharding, changing the original timeline. The sharding upgrade is now expected to occur sometime in 2023. The new shard chains that will be introduced will be used for data storage, but will not be capable of executing code.
In the end, sharding will only be possible if The Merge is successfully implemented, as shards will rely heavily on PoS consensus. And this is just one of the reasons why The Merge represents such a fundamental shift for Ethereum. Proof-of-Work certainly has a huge historical significance for blockchain development, but the current trends point to PoS being the future of the technology. With that in mind, we can safely say that Ethereum’s transition to the PoS model is not only a huge undertaking, but arguably the most significant development in the history of the blockchain sector. And we cannot wait to see it finally completed!.
