On September 15, 2022, Wednesday, one of the most significant developments in the history of the cryptocurrency industry, which has been years in the making, finally took place: the system-wide upgrade to the Ethereum blockchain, named “The Ethereum Merge.” This article explores what this Merge means, how the transition happens, what the new Ethereum looks like, and what it entails.
What exactly is Ethereum Merge?
In simple words, the “Ethereum Merge” denotes the official time when Ethereum switched from Proof-of-work (PoW) to Proof-of-Stake (PoS) authentication protocol by merging its original execution layer (the Mainnet) with the PoS consensus layer, the Beacon chain, which has activated on The Bellatrix update, and went live at 11:34:47 UTC on September 6, 2022. After that, the Proof-of-Work chain will make its final switch over to Proof-of-Stake when a Terminal Total Difficulty (TTD) number, which measures the cumulative difficulty of all blocks ever mined using the network’s PoW algorithm, is reached.
The TTD value is 58750000000000000000000 and was to hit between Sept 10th and 20th, 2022. However, the exact date depends on the hash rate of the PoW consensus. A Beacon Chain validator will create the next block as soon as the execution layer approaches or goes past the TTD. Once the Beacon Chain has finalised this block, the Merge transfer deems finished.
In this upgrade, the consensus layer (CL) and execution layer (EL) clients of node operators need to be updated simultaneously instead of only one of the two like before. Moreover, the upgrade activates in two stages, the first is called Bellatrix and occurs at an epoch height on the Beacon Chain, and the second is called Paris and occurs when the execution layer reaches the TTD.
Proof-of-Work Vs. Proof-of-Stake
Thus far, ETH has been using the Proof-of-work (PoW) authentication protocol, in which select participants (miners) contest against each other to execute complicated mathematical calculations to validate transactions in return for network incentives. Although it has advantages, this protocol requires highly specialised computer software with high processing power. It uses a staggering amount of energy, among a few other huge downsides, similar to one in bitcoin mining. Bitcoin’s energy consumption is huge. This verification method has been subject to extensive criticism over the years due to its high energy consumption.
Another consensus mechanism was introduced to address the problems with PoW, called the Proof-of-Stake (PoS). This protocol replaces miners in PoW with randomly chosen network members, called “validators,” and places the decision-making authority in their hands. These participants will hold a certain number of cryptocurrencies (32ETH to be exact, in the case of Ethereum) that they cannot spend for a while (6-12 months in the case of Ethereum). Instead of solving a complex Mathematics challenge, these members choose the blocks they decide to be legitimate and stake their cryptos as collateral against them.
How is Ethereum transitioning towards Ethereum 2.0?
“The Merge” has marked this transition of ‘Ethereum’ to ‘Ethereum 2.0’ across all sectors. Since 2020, Ethereum has been working on this shift, and the launch of Ethereum 2.0 has been in the process.
According to the Product Leader of Consensys, Ben Edgington,
“There are several aspects to this: managing validators and their stakes; nominating the chosen block proposer for each shard at each step; organising validators into committees to vote on the proposed blocks; applying the consensus rules; applying rewards and penalties to validators; and, being an anchor point on which the shards register their states to facilitate cross-shard transactions.”
The first upgrade was conducted in December 2020 and named the Beacon chain, a blockchain separate from the Ethereum Mainnet. This Beacon chain initiates the native staking to the Ethereum blockchain – a crucial aspect of the network’s transition to a PoS consensus mechanism.
The next phase was The Merge, where the Ethereum Mainnet merged with the Beacon chain, as mentioned earlier. Under this system, there will be two operational Ethereum chains: the Eth1 chain (the current PoW primary chain) and the Eth2 chain (the new Beacon Chain). Users can transfer their ETH from the Eth1 chain to the Eth2 chain and turn them into validators. However, they cannot transfer this Ethereum back to Ethereum 1. A validator public key becomes registered as an active validator and is added to the waiting list for activation after accumulating a balance of 32 ETH.
In the last stage, known as Shard chains, all operations will be dispersed across 64 new chains rather than concentrated on a single blockchain, enabling parallel transaction processing and critical to future scalability. The infrastructure to scale further with more hardware upgrades will also be in place. As a result of the reduction in the amount of data that needs to be saved on a given machine, running an Ethereum node will become considerably simpler from a hardware viewpoint. The Ethereum Foundation informs that the complete transition will occur by 2023.
Ethereum vs. Ethereum 2.0 – What is the difference?
The short answer is that there won’t be any different from the user’s point of view. Ethereum developers work hard to maintain every functionality on the surface level; therefore, the user experience is the same. Even though the operating systems will differ, the APIs used in pre- and post-merge, along with most of the fundamental components of the dApps and smart contracts, will be the same.
As Tim Beico from the Ethereum Foundation says,
“The Merge is designed to have minimal impact on how Ethereum operates for end users, smart contracts, and dapps.”
Practically the only difference will be in terms of the new consensus mechanism and the advantages it potentially will bring, which are said to be as follow –
- Energy usage: The PoS protocol will remove the necessity of using high-end hardware with extra processing power and will bring down the number of operational computers at each point to maintain the Ethereum network. Consequently, reducing energy usage by an excessive amount (estimated 99.95%). The Ethereum website compared their estimated overall energy usage post-Merge :
- Scalability: The scalability will be massively enhanced – opening the network up for further upgrades. Only 30 transactions can be supported per second on the Ethereum network, leading to delays and congestion. The introduction of Shard chains in Ethereum 2.0 promises as many as 100,000 transactions per second in the future.
- Hardware: Ethereum will also become lighter on the hardware, as explained earlier.
- Security: The PoS consensus mechanism will make the system incredibly secure – much more than before. Hence, the possibility of reducing attacks on the network, taking Ethereum towards a more sustainable crypto-economic model.
Proof-of-Stake has been around for a long time; this is the first time it has been employed on a platform as large as Ethereum. So, many parts need to be taken care of, which the developers of Ethereum are consistently working on, together with a few other areas which only the test of time can reveal. Either way, we can confidently say that the Ethereum Merge is a massive step towards a more efficient and sustainable future of decentralisation.In case of any blockchain development or consultation requirements, the usage, integration, or investment, get in touch with our experts at Blockchain Australia.