The successful execution of “The Merge” by the second largest cryptocurrency, Ethereum, is probably the most pivotal technical upgrade that the Web 3.0 ecosystem has witnessed in recent history.
You might have seen it get extensive coverage from every Web 3.0 publication, project, influencer, and traditional media source. But if you didn’t fully understand what exactly is so special about “The Merge” then you are at the right place.
Read this blog to understand what “The Merge” is and what it means for the blockchain ecosystem.
Let’s start with some historical context.
Up until now, the Ethereum network has been leveraging Proof-of-Work (PoW) as a consensus mechanism to verify new transactions, add them to the blockchain, and create new tokens. This meant that in order to make any new addition to the network, users had to solve a complex mathematical problem and use that work as proof of a legitimate transaction. While this is certainly revolutionary in terms of security and decentralization, this mode of computation struggles with scalability.
Getting a solution to the mathematical problem and then getting the network to validate the transaction takes high computational power that requires a lot of energy, congestion, delays, gas fee spikes, and most importantly, a significant carbon footprint.
To catalyze a sustainable growth of the Web 3.0 ecosystem, something needed to change.
Enter Ethereum 2.0!
How Did “The Merge” Take Place?
As we mentioned, Ethereum had been working on PoW since its genesis in July 2015. However, on December 1, 2020, a new separate consensus Proof-of-stake layer known as the Beacon chain (See Fig.1) was created from the existing mainnet.
The Ethereum mainnet was running as usual with all its accounts, applications, and working with PoW, along with the Beacon layer that follows PoS, in parallel. The Beacon chain was working alongside the testing and processes with active validators without affecting the PoW mainnet.
After successful testing, the Merge took place. As a result, the Beacon chain that runs on PoS became the consensus mechanism on the execution layer as a single chain to handle all the accounts, user data, and transactions.
Now, switching to proof-of-stake, validators are responsible for validation processes, and there is no need to mine in order to validate blocks by heavy computational power consumption.
Fig. 1
Advantages of PoS
Here are some advantages of the proof-of-stake consensus mechanism:
Participation of More Users
The Merge will make Ethereum work on PoS, where users can participate by staking their Ether and earn rewards for securing and validating the transactions.
Unlike PoW, users can contribute without requiring a high-end system and an enormous power supply. Staking makes the process much more convenient and accessible for Ethereum users. This will induce more investors to invest and stake in Ethereum and also to become validating node providers to work and protect the Ethereum network.
However, to participate and run your own nodes for validating transactions, holders must submit a minimum of 32 Ether. But, there are a few platforms like Coinbase and Lido Finance, which are entitling users with less than 32 Ether and staking benefits of 3.25% APY and 3.8%, respectively.
Environmental-friendly System
An estimation by the Ethereum foundation states that the new PoS consensus layer will reduce power usage by 99.95%.
As per the calculation, this power absorption could equal lighting up a small country. So you can assume the energy wastage and the direct impact on the ecosystem. Now that the Merge has turned Ethereum into a green cryptocurrency, we can witness new companies and potential investors as a scope for adoption and ecological welfare.
The Potential Of Sharding
As per the founder of Ethereum, Vitalik Buterin said, “even after the successful merge, there is only 55% of completion.” Some misconceptions about this Merge were that it would reduce fees and speed up transactions.
Even though the Merge did not solve these significant problems directly, it has opened multiple possibilities for improvement. One of the primary reasons for the Merge execution was to increase the capacity, which can indirectly influence the speed and cost.
And to make this come into reality, introducing the sharding process that can divide the Ethereum blockchain into manageable smaller blockchains for validators.
As per Ethereum’s website, they are shipping it in 2023, depending on the successful implementation of the post-Merge.
Impact Of The Merge On Users And Developers
Currently, the merge did not affect much for users and the funds in the wallets. Therefore, there is no need to follow any procedure for holders of Ethereum or other dApps and Layer 2 networks built on Ethereum and the non-node-operating stakers.
As per Vitalik, the post ”the merge” will lead to upgrades like “surge,” “verge,” “purge,” and “splurge.”
Due to these further paths toward Ethereum upgradation, users can easily validate the process even through their laptops and smartphones, reduce storage block necessity, eject history data storage, and inaugurate splurge process to check if the system updates are running seamlessly.
This will lead to a rise in demand and a decrease in Ethereum supply. And overall, it will create a high-value price request and attract investors in the future.
If you’re a developer, check out more information about the Merge impact on the Ethereum application layer on the official Ethereum Foundation blog.
Conclusion
After the success of the Ethereum merge, one of the most significant events in crypto history, we can witness major changes in the upcoming time.
As of now, the influence of the Merge on infrastructure and holders is slightly less, with no sign of relief in terms of gas fees. Still, it has unlocked the further upgradation of the network, which can lead to these changes.
Moreover, turning into a Proof-of-stake consensus mechanism, Ethereum 2.0 has now set an example for world business leaders and governments to adopt and look forward to digital currencies and blockchain technology as the future.