Technology is dynamic and keeps fueling innovations. That said, the Ethereum blockchain, the second largest crypto by market cap, is expected to undergo a massive network upgrade.
This upgrade implementation – Ethereum Merge – will bring along various benefits.
This blog delves into what Ethereum Merge is, why proof-of-stake is needed, the importance of the Beacon chain, how the merge will affect the ETH price and more.
Let’s get started.
What is Ethereum Merge?
In simple terminology, Ethereum Merge refers to the transitioning of the Ethereum blockchain from its current power-intensive Proof-of-Work mechanism to a more environment-friendly Proof-of-Stake consensus mechanism.
As a result of the upgrade, Ethereum Mainnet will merge with the Beacon Chain Proof-of-Stake system. This will, in turn, help in sharding which enhances the scalability and storage capacity of the platform.
Why is Proof-of-Stake needed?
The Ethereum network currently operates on the Proof-of-Work (PoW) consensus algorithm. According to this method, miners have to compete for rewards depending upon the computational power and resources expended in solving complex cryptographic problems. On the flip side, the Proof-of-Stake (PoS) uses the concept of letting PoS validators create new blocks and validate others when they aren’t in creation.
When a participant validates the latest block of transactions, the other nodes can confirm it. If the majority of the nodes confirm, the new block is added, and the validator receives a reward as Ether, the blockchain’s native currency. The validators get the reward in proportion to the Ether staked in the platform.
As a best practice and to incentivize the right behavior, validators are penalized if they don’t validate or confirm fake transactions.
The greatest advantage that PoS offers is anyone who can meet the minimum requirement of 32 ETH can stake. Others, who cannot meet this threshold limit, can contribute by staking ether in a pool managed by third parties and earning rewards.
PoS offers various benefits over the PoW algorithm. First, it obviates the need for sophisticated hardware equipment like mining rigs. Second, it entails a lower risk of network centralization, which otherwise hinders the platform’s security. Finally, it supports more efficient utilization of energy resources.
Understanding the Ethereum Merge
Vitalik Buterin, the founder of Ethereum, has always been a staunch supporter and proponent of the Proof-of-Stake mechanism. As compared to PoW, the proof-of-stake consensus method minimizes the energy consumption of the network by 99.95%.
In addition, the Ethereum merge is expected to act as a gateway to the shard chains in 2023. This, in turn, would reduce data congestion and high gas fees, and pave the way for the layer 2 scaling systems. According to the Ethereum Foundation, shard chains provide cheaper and additional storage layers for applications to store data.
Under Ethereum Merge, all updates and changes to the protocol require consensus from the global community. As a result, the implementation of the consolidation of the network, associated upgrades, and forks across various elements like the Beacon Chain, the Merge, and Shard Chains have to be carried out in a highly planned and careful manner.
Importance of Beacon Chain and Ethereum Merge
As discussed in the earlier paragraphs, Ethereum is shifting toward the Proof-of-Stake consensus mechanism. To achieve this, the Ethereum Mainnet (which uses the PoW) has to merge with the Beacon Chain (the consensus layer).
In addition, it is important to prepare Ethereum for the next level of upgrades of shard chains as they help the network to scale and store more data. Initially, it was planned to focus on the shard chains prior to the merge. However, the rapid growth of layer2 scaling systems made the experts change their minds, shift the focus to the Ethereum merge, and move to the Proof-of-Stake mechanism.
The Beacon Chain is important as it is expected to collaborate between the shards and stakers. In addition, as the Beacon Chain cannot execute smart contracts and handle accounts, the merge will incorporate this feature into the proof-of-stake system.
Timelines for Ethereum Merge
The final Ethereum Merge is set to happen between September 10-20, 2022. During this time frame, the transition from Proof-of-Work to Proof-of-Stake is expected to be completed, paving the way for one of the greatest transformational breakthroughs in the world of blockchain and cryptocurrency.
How will the Ethereum Merge mark a milestone in the cryptocurrency space?
Ethereum is the second largest cryptocurrency by market cap and is expected to undergo a massive network upgrade that would transition its consensus mechanism from the current Proof-of-Work to the Proof-of-Stake.
This is a significant development in the crypto world, where the Ethereum Mainnent will merge with the Beacon Chain. This offers a plethora of benefits. Transitioning to PoS from PoW will help reduce network energy consumption by 99.95%, making the blockchain more eco-friendly. Sharding will provide the benefits of scalability and storage, thereby contributing to the future growth of Ethereum. Finally, the Ethereum Merge would also open the doors for several other use cases and investment options for the Ethereum cryptocurrency.
What follows the Ethereum Merge?
Post Ethereum Merge, the process of sharding would begin that would prepare the network for Ethereum 2.0 shard chains, which would rely on the PoS mechanism. As a result, the network workload would be spread across 64 blockchains, and these would provide extra, cheaper layers for storing data. Besides, the Layer2 scaling systems would also operate to provide low transaction fees and benefit from the Ethereum Mainnet.
Merge is only one of the stages of the development cycle of Ethereum. As per co-founder Vitalik Buterin, the five phases are – ‘The Merge’, ‘The Surge’, ‘The Verge’, ‘The Purge’, and ‘The Splurge’.
What happens to the ETH price after the Ethereum Merge?
It’s a tricky question. Well, it is expected that after the merge, there will be tremendous opportunities for those on-chain, and if there’s an increase in participation, the ETH price will definitely go up.
Some experts opine that it might even result in a 200-500% rally in Ethereum price going upwards. However, these are only speculations and what will happen is for us to wait and watch.
Final Thoughts
Ethereum Merge will undoubtedly be a significant contributor to fostering a transformation in the development of the Ethereum platform. The most vital aspects of this upgrade are discussed in the blog. Any other feature or impact that might accompany this implementation is for the future to speak.