The Ethereum Merge will change the methods of validating transactions on the Ethereum network. This change will reduce the mining energy by almost 99%.
The Ethereum network is the blockchain on which the crypto Eth works. The network is migrating for more sustainability. It is moving from PoW (Proof of Work) to PoS (Proof of Stake) consensus mechanism.
The former is more energy-consuming, while the latter is more sustainable. The moment when the switching happens is called Ethereum Merge.
Ethereum’s co-founder, Vitalik Buterin, mentioned on his Twitter page that the merge would happen on the 15th of September.
Although, the project has been under development for a long time now. Also, the plans for the merge look firmer today than it was some months ago. However, there might still be some delays.
The main reason for the merge is to reduce the amount of energy Ethereum mining consumes. So, Ethereum says that when the merge happens, energy consumption will reduce by 99.5%.
Also, it says that the merge will make the network more scalable.
Why is Ethereum Merge Happening?
To explain transactions, the Ethereum Foundation employs an analogy. This analogy paints Ethereum as a rocket that has taken off but has not gotten to its destination: “The community has built a new engine and a hardened hull. After significant testing, it’s almost time to hot-swap the new engine for the old mid-flight. This will merge the new, more efficient engine into the existing ship.”
Proof of Work (PoW)
So, the question is, “what is the problem with the old engine?” Since the launch of Ethereum in 2015, the blockchain has been using Mainnet.
The Mainnet has been using the Proof of Work consensus algorithm to securely add transactions to its blockchain network.
Fundamentally, the algorithm allows users to solve maths problems with increasing difficulties. The user who solves the mathematical computation first gets the opportunity to add new blocks to the blockchain.
As a result of the work done, the system rewards the user with the blockchain’s native token ETH. Some other blockchains use the proof of work consensus algorithm to verify transactions, for example, the Bitcoin blockchain network.
However, this method of securely validating transactions consumes a lot of energy. Research has shown that the amount of energy Ethereum PoW uses yearly equals the entire energy consumption of some countries within the same period.
Proof of Stake (PoS)
On the other hand, proof of stake uses less energy to validate transactions. So, users will stake their cryptocurrencies rather than buy machines that consume a lot of energy.
The users who stake their cryptocurrencies will also are known as validators. The system will randomly select users who validate transactions based on the validator’s stakes.
So, if a validator successfully adds a block to the Ethereum network, the system will reward the validator with ETH. Also, if the system detects that some validators are trying to act maliciously to get selected, they will lose their stakes.
How Would the Merger Work?
The merger will be powered by a vital technology called the “Beacon Chain.” This chain is a PoS account ledger that does transaction verification and addition outside the Mainnet since it came into the blockchain scene in December 2020.
Moreover, since its launch, the Beacon Chain has been going through various testing phases. The scalability feature of this chain has given it an increasing track record. Currently, the Beacon Chain has over 400,000 validators.
If the Ethereum merge happens soon, Ethereum will move its information Mainnet to the Beacon Chain.
What will the Ethereum Merger Change?
The merger will halt mining activities on the Ethereum blockchain permanently. If Ethereum migrates to staking, verifying transactions on the Ethereum network (Mainnet) will be impossible via mining.
Confirming transactions will only be possible for the Beacon Chain validators. As a result, only validators in the Beacon Chain will add new blocks to the Ethereum Blockchain.
Consequently, the merger will drastically reduce the speed at which new ETH coins enter the system. Mining rewards are larger than staking rewards.
So, with the move from mining to staking, the number of ETH rewards the merge will give validators will reduce. In addition, there will also be a reduction in the amount of energy the Ethereum network needs to keep working.
Furthermore, the merge will make Sharding possible. Sharding is a process that splits transaction validation into smaller units. This splitting will allow the blockchain network to confirm more transactions.
Also, Sharding will increase the number of validators in the network by allowing people to validate Ethereum transactions on smaller devices like mobile phones.
However, Sharding is not part of the merge for now. It will be one of the updates the network will add in the future.
What the Ethereum Merge Will not Change
- According to Ethereum’s website, the merge will neither make transaction speed faster nor lower gas fees.
- Also, the way users access their ETH coins will not change. The network will transfer the full transaction history on the Ethereum Network to the Beacon Chain. So, nothing will change in the way people access their coins.
What the Ethereum Merger Means
- For Investors – If you already bought and hold ETH, you do not need to do anything special. However, it would be best if you watched out for scams. People are scamming investors by telling them to upgrade to a new token, ETH2. Ethereum warns investors to ignore such information as there is no token like ETH2.
- For Miners and Stakers – Unlike investors, there will be a change in operations for Ethereum miners. Ethereum mining will be out of fashion, so you will no longer be able to mine even if you have an Ethereum node. The change will also affect Beacon Shain Stakers. To have a seamless verification process as a validator, you must take the following steps.
Ethereum 2.0 Merge is the next big thing to hit the crypto ecosystem. A lot will depend on it, including changing the narratives about consensus algorithms.
Primarily, this merge will be a big shift in the ecosystem because Ethereum is the second most popular crypto in the industry. In addition, this merge could bring another bull run for Ethereum.
Remember, people will have to buy more ETH to stake as validators. So, we may see more ETH buying in the coming days ahead of the merge.