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The Ethereum Merge: What It Is and Why It Is Important | OWNR Wallet

The Ethereum Merge: What It Is and Why It Is Important

Although Ethereum is considered to be a more advanced blockchain than Bitcoin, it also lacks scalability and processing agility, which is why the Merge upgrade was done. What does that mean? This article describes the issues addressed by this technological advancement, why Proof-of-Stake consensus is considered to be a better alternative to Proof-of-Work, and describes its benefits for the network and its participants. Also, you will find out what the post-Merge Ethereum future will look like, and what challenges node operators might face.

What Is the Ethereum Merge?

In essence, the Ethereum Merge modifies the blockchain's verification process – this is a shift from Proof-of-Work to Proof-of-Stake.

Although the Merge doesn’t instantly address scalability issues, it will help the network get ready for Ethereum's version of subsidiary shard chains, which will require a fully operational PoS network to function. Shard chains offer more affordable data storage layers for apps and rollups by distributing the network's data load among 64 blockchains. They also make it possible for layer-2 systems to provide minimal transaction costs while gaining the advantages of the Ethereum mainnet's security.

When the Merge is complete and Ethereum's newly accepted consensus layer begins to add new blocks to the blockchain using the Proof-of-Stake consensus method, Ethereum developers will proceed with the four next stages (The Surge, the Verge, the Purge, and the Splurge). These will keep enhancing the scalability and security of Ethereum's PoS network.

Why Is It Called "The Merge?"

The Ethereum community determined years ago that switching from a PoW to a PoS consensus method was advantageous. The Merge represents a transition from Ethereum 1.0 to Ethereum 2.0 – two concepts are integrated in one platform, without doing a hard fork of the blockchain.

On December 1, 2020, after working through a number of suggestions and technical challenges, they established the "Beacon Chain," a testing environment for the PoS consensus that operates alongside and in conjunction with the main Ethereum chain. On the Beacon Chain, there are more than 400,000 network validators who have bet more than $23 billion in Ether altogether. The Beacon Chain was incorporated into the Ethereum mainnet on September 15, 2022, replaced by Proof-of-Stake. The blockchain no longer supports the PoW algorithm since The Merge was successfully completed.

Proof of Work vs. Proof of Stake

The goal of a blockchain is to get rid of intermediaries, such as banks or governments, to complete a transaction. This is why all operations are openly recorded on a peer-to-peer, network-controlled, immutable digital ledger. The automated algorithms that verify each transaction on a blockchain are known as consensus mechanisms. They serve to authenticate data in a decentralized way.

Before we delve into our explanation of the Merge event, let us observe two consensus mechanisms used by blockchains – Proof-of-Work and Proof-of-Stake.

  1. Proof-of-Work (PoW). Miners must validate transactions in order to add blocks to a blockchain. A network of nodes (computers) is engaged in a race-like consensus mechanism where they compete to find solutions to challenging problems. It is also known as cryptocurrency mining.
  2. Proof-of-Stake (PoS). This process eliminates miners and relies on token holders to validate transactions by contributing a set amount of Ether or joining a pool to gain access to software that enables validators. It functions like a random lottery, with users gaining the opportunity to confirm a transaction. The odds of winning increase with the amount wagered.

Up until recently, Ethereum ran on a Bitcoin-inspired Proof-of-Work mechanism. All of that was altered by The Merge, which introduced a Proof-of-Stake consensus process that completely eliminates miners and uses less energy.

The History of the Ethereum Merge

Ethereum co-founder Vitalik Buterin has long supported the Proof-of-Stake consensus method, as shown by both his early and subsequent writings. PoS was anticipated to lower network energy usage by at least 99.95% compared to Ethereum's previous resource-intensive PoW governance method.

Shard chains significantly reduce data congestion, making the Merge reduce gas fees, and support the subsequent generation of layer-2 scaling systems. According to the Ethereum Foundation, shard chains offer additional, more affordable storage tiers for applications and rollups to store data.

The community and Ethereum team were criticized for delays in major technical milestones, however, any substantial modifications to the core protocol require approval from the whole network of nodes. Switching to PoS is just one step in the row of incremental updates and forks across multiple key components. The Beacon Chain, the shards, the Merge, and subsequent improvements altogether make it possible to fulfill Ethereum's full potential for increased scalability, security, and sustainability – yet these steps cannot be taken separately; they depend on one another.

What Happens After the Merge?

After the end of the Merge, Ethereum miners were replaced by validators (stakers). Staked ETH tokens were unlocked, so now they can be withdrawn. The Merge is successfully serving one of its major goals – reducing energy usage by more than 99%. Now, the Ethereum Foundation is working on the next stages, called the Surge, the Verge, the Purge, and the Splurge. These will continue enhancing the scalability and security of the network.

So far, the ultimate aim is to make the network capable of processing high block size and frequency. Ethereum is being gradually improved to deal with thousands of transactions per second, while staying censorship-resistant and reliable.

The Pros of the Ethereum Merge

The Merge marks a new stage of Ethereum development. It is believed to leverage new opportunities for creation of dApps and Web 3.0 projects. Here are its major advantages for Ethereum development.

Sustainability

Switching to PoS eliminates the energy-intensive mining process, reducing the carbon footprint and energy consumption associated with Ethereum transactions and operations.

Security

The platform's security has been strengthened, making it five times more difficult to breach. Each additional validator that joins the protocol dilutes power concentration, making the system itself difficult to manipulate. Insider attacks are less likely to happen within a staking system, because they would have to endanger their own money.

Decentralization

At the time of writing, there are 840,965 active validators, with new slots reopening every minute. Every participant contributes to network decentralization, making it harder to breach.

Scalability

Sharding and rollups are two ways to support the platform's growth. A large database is spread over several computers (nodes) via sharding. Rollups, in turn, represent a processing method that bundles transactions, executing them on a sidechain, then wrapping them up into one record before returning the results to the mainnet thereafter. This boosts network scalability and increases transaction fees to $0.30-0.40.

The Cons of the Ethereum Merge

Although the Merge was initially designed to boost network decentralization, there is a slight chance that Ethereum’s shift to PoS may permit more power to be concentrated. Before the Merge, approximately two-thirds of Ether could be linked to three centralized crypto exchanges and one DeFi staking pool. Although it is true that the PoW mechanism led to such an imbalance, a PoS move might only exacerbate the situation.

Community members within this camp view the change as a move away from decentralization because the procedure is no longer a matter of computational math, but rather relies on the wealth of stakers. Other problems include a deliberate 90% reduction in currency production, since mining payouts, which were far larger than staking incentives, are no longer given out.

What's Next for Ethereum?

According to Vitalik Buterin and his team, the Ethereum Merge will be followed by several steps that further enhance network scalability and transaction processing speed. Here are the next upcoming milestones.

The Surge

The Surge, which is slated for 2023, is a mass scaling solution that uses sharding to boost network performance. At the moment, Ethereum handles 15 to 20 transactions per second. After the Surge gets included into the mainnet, this number will rise to more than 100,000.

According to the Ethereum Foundation, this shift will maintain layer-2 blockchains' low costs, enable more economical rollups (or bundled transactions), and make it easier for nodes to operate, resulting in a more secure network.

The Scourge

This phase concentrates on developing a consensus layer that does not discriminate against any one user, in order to increase censorship resistance and maintain the integrity of the platform's decentralized structure. It entails contending with front-running users who employ MEVs (miner extractable values), to fetch and alter the sequence of data within a block.

The Verge

Users will be able to utilize their locked-up (or staked) Ether to become validators by using "Verkle trees," mathematical proofs that serve as data storage units, and stateless clients — avoiding the obligation to keep a significant quantity of data on their system.

The Purge

The Purge, which bids farewell to old network history, seeks to reduce technical debt by gradually simplifying the protocol. While lowering the amount of hard drive space, node operators still need to set aside some storage space, but the ultimate goal is to free certain nodes from maintaining any sort of permanent data history.

The Splurge

Issues that surface during or are not addressed in the earlier development phases will be refined at this last Post Merge stage.

Conclusion

The Ethereum Merge is a significant upgrade that transitions the Ethereum blockchain from Proof-of-Work to Proof-of-Stake consensus. This transition aims to make the network more sustainable and eco-friendly by eliminating energy-intensive mining. By adopting the Proof-of-Stake mechanism, the Ethereum network reduces its carbon footprint and energy consumption, making it a more environmentally friendly blockchain platform. This upgrade holds the potential to enhance scalability, security, and efficiency while aligning Ethereum with the growing global focus on sustainability in the blockchain industry.

FAQ

What will happen to ETH after the Merge?

So far, this change has reduced energy consumption, making the network more sustainable and scalable. Transaction fees have been reduced while processing speed has risen. Later on, the Ethereum Foundation will fulfill other development stages (the Surge and the Scourge are next).

What is the Ethereum Merge 2023?

This is the same thing as the Merge that was completed in 2022. This year, the transition process continues, and 2023 is marked with preparation for the next stage – the Surge.

Why is the Ethereum Merge a big deal?

This is a critical upgrade, because the Ethereum mainnet switched the transaction verification algorithm from Proof-of-Work to Proof-of-Stake. It means a completely different way of data processing, much less energy consumption, and significantly reduced fees.

Can I lose my ETH with the Merge?

After the Merge, Ethereum validators were able to withdraw staked ETH, and there is still no risk of losing your coins.

Did Ethereum lose value after the Merge?

In the Post Merge period, Ethereum lost around 20% of its value. However, its price was not affected directly by the event. The drop happened rather because of the US market conditions (growing inflation, SEC claims about instability and risks of cryptocurrencies), and conflicting behavior of Ethereum day traders and long-term investors.

Should I buy ETH after the Merge?

Since the Ethereum price is far from ATH points and the crypto winter is still going on, buying ETH for the long term can be a good idea. The Ethereum Foundation keeps passing development milestones year by year, contributing to further evolution of the network and the token itself.

DISCLAIMER:None of the authors, contributors, administrators, or editors connected to OWNR Wallet encourage readers to invest in Ethereum (ETH) or other cryptocurrency without doing proper research on their own. This article is purely for educational purposes only.

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