After over 20 months of Beacon Chain and testnet merges, we’re finally about to undergo the most important upgrade in Ethereum and Web3’s history: The Ethereum Merge.
What is the Ethereum Merge?
The Ethereum Merge, previously known as ETH2.0, is the network’s transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS). Proof-of-Work is the consensus mechanism in which blocks are completed through computational effort: miners require a lot of hardware and electricity in order to complete blocks, secure the network, and earn ETH. Proof-of-Stake, on the other hand, skips the “lots of hardware and high energy consumption” part, and jumps straight to securing the network through ETH staked by the validators.
One of the most frequently asked questions is, if the validators with the highest ETH stake will be completing a lot of the blocks (just like we see with Mining Farms), how can we ensure these act in a honest way?
Well, given validators’ funds are staked in the network, these funds are also used as a “collateral”: if validators act maliciously, the network will slash that validator’s funds. Based on this principle, incentives to act maliciously are minimized.
What will the Merge change?
- Ethereum’s energy consumption will be drastically decreased. PoS not only represents a way more eco-friendly alternative to PoW. Proof-of-Stake doesn’t require miners to consume energy in a duplicative process, which is all miners competing for the same puzzle.
- Ethereum’s security will potentially become more robust. Given PoS introduces the concept of Slashing, validators have no incentive to act maliciously, but they do have incentives to behave accordingly and help to maintain a healthy and secure network. These incentives being in the form of a stable APR with no slashing of their funds.
- ETH inflation will be reduced, potentially making ETH deflationary. ETH issuance will decrease, and as demand for blockspace goes up, the more ETH will likely be burned (EIP 1559).
What will the Merge NOT change?
Ah, this is a good one! There’s been a lot of misinformation going around in terms of “all the things that will come with the Merge”. The Merge will NOT:
- Decrease Gas Fees. Gas fees are a product of the demand for blockspace. Sharding will be the upgrade taking care of decreasing gas fees, as it will introduce “more blockspace” for transactions and rollups to store all necessary data.
- Increase Scalability. The Ethereum Merge will have no effect on scalability whatsoever; Sharding will be the hero for this one as well, coming after the Shangai upgrade.
- Allow stakers to withdraw their staked ETH. Ethereum withdrawals for stakers will not become available until the Shanghai upgrade, which will likely take place 6–12 months after the Merge.
It’s possible that we could see some type of downtime or bumps while the Merge is taking place, but even then, this has been a live example that user-activated, autonomous, decentralized coordination can work. In the words of Patrick Collison “One of the coolest examples of sustained, ambitious, technically difficult open source development.”