Ethereum Merge: Everything to Know
By Beluga Research September 12, 2023
- The Ethereum Merge is a significant upgrade that combines Ethereum's PoW and PoS systems, improving scalability and sustainability
- The Ethereum Merge, a critical step in the Ethereum upgrade, transitioned the Ethereum system from proof-of-work (PoW) to proof-of-stake (PoS)
- The Merge replaced energy-intensive mining with staking, where validators propose and validate new blocks based on the amount of ETH they hold
- This transition also enhanced decentralization, increased participation and improved transaction throughput and network efficiency.
The Ethereum Merge is a significant upgrade that combines Ethereum's PoW and PoS systems, improving scalability and sustainability. This change in how Ethereum is technically run improves the sustainability of one of the largest blockchain networks in the word.
A Brief History
Since its inception, Ethereum has experienced significant growth and adoption, becoming the second-largest cryptocurrency by market capitalization. However, Ethereum's proof-of-work (PoW) consensus mechanism faced criticisms due to its energy consumption and scalability limitations. To address these concerns and improve network efficiency, Ethereum has been planned a major upgrade which consisted of multiple phases.
Phase 0 of "Ethereum 2.0", also known as the Beacon Chain, was successfully launched in December 2020. The Beacon Chain introduced the PoS consensus mechanism, where validators secure the network by locking up a certain amount of ETH as collateral. This new consensus mechanism significantly reduces energy consumption compared to PoW.
To facilitate the Ethereum Merge, a comprehensive upgrade called the "London Hard Fork" was implemented in August 2021. The London Hard Fork introduced notable changes, including EIP-1559, which transformed Ethereum's fee market by introducing a base fee and a mechanism to burn a portion of transaction fees. This upgrade aims to make transaction fees more predictable and reduce gas price volatility.
The Merge, completed September 15, 2022, brings several important changes to the Ethereum network. It replaces the energy-intensive mining process with staking. Validators, chosen randomly based on the amount of ETH they hold and are willing to lock up as collateral, propose and validate new blocks instead of miners solving complex mathematical puzzles. This dramatic reduction in energy consumption makes Ethereum more sustainable and addresses concerns about the ecological impact of blockchain technology.
Ethereum Merge: Everything to Know
The Ethereum Merge, also called the Merge or ETH2, is a critical step in the Ethereum upgrade. It involves merging the Ethereum mainnet, which previously operated on PoW, with the Ethereum Beacon Chain, which operates on PoS. This transition from PoW to PoS makes Ethereum more secure, scalable and environmentally friendly.
Another significant benefit of the Ethereum Merge is improved scalability. Ethereum's PoW consensus mechanism had limitations in transaction throughput and network congestion during high demand. The Merge leverages new scalability features, including shard chains and parallel transaction processing, to enhance the network's capacity and reduce transaction fees. This makes Ethereum more efficient for users and developers.
The Ethereum Merge also increases decentralization. As mining becomes obsolete, the entry barrier for participating in securing the network is lowered, allowing a broader range of individuals to become validators and contribute to the consensus process. This increased participation and distribution of validators enhances the resilience and security of the Ethereum network.
To understand the Ethereum Merge, it's important to know the basics of the Ethereum blockchain. Ethereum is a decentralized platform that enables the creation and execution of smart contracts. It introduced decentralized applications (dapps) and facilitated the development of tokens, decentralized finance (DeFi) protocols and non-fungible tokens (NFTs).
The Ethereum Merge brings several unique aspects that differentiate it from the previous Ethereum network. The most significant change is the transition from PoW to PoS consensus mechanism. In the current Ethereum network, PoW requires miners to solve complex puzzles, consuming a lot of computational power and energy.
In contrast, the Ethereum Merge replaced PoW with PoS, where validators lock up cryptocurrency as a stake to participate in the consensus process. Validators are randomly selected based on their stake to propose and validate blocks. This transition to PoS reduces energy consumption, speeds up block confirmation times, and improves scalability.
Another unique aspect is the implementation of the Beacon Chain, which coordinates the PoS consensus mechanism. It managed validators, consensus protocol and facilitated shard chains' coordination. Shard chains increase scalability by enabling parallel processing of transactions.
The Ethereum Merge also introduced eWASM (Ethereum WebAssembly), a new virtual machine. eWASM offers improved performance, flexibility for developers, compatibility with multiple programming languages and enhanced security features.
- Enhanced Scalability: The Ethereum Merge improves network scalability, enabling faster and more efficient transaction confirmations by processing a larger number of transactions per second.
- Reduced Energy Consumption: The Ethereum Merge significantly decreases energy consumption by shifting from the computationally intensive proof-of-work (PoW) to the more energy-efficient proof-of-stake (PoS) consensus mechanism.
- Increased Security: The Ethereum merge will enhance network security by implementing a finality mechanism that prevents block reversals or modifications, making the network more robust against attacks.
- Lower Barrier to Entry: The transition to PoS in the Ethereum Merge makes it easier for individuals to participate in securing the network, as it won't require specialized hardware or significant energy resources like PoW mining.
- Economic Incentives: The Ethereum Merge introduces economic incentives for network participants. It rewards validators with additional cryptocurrency for their efforts in securing the network and validating transactions, leading to a more decentralized and secure ecosystem.
- Centralization Risks: The PoS system introduces the risk of centralization, as validators with larger stakes have a higher chance of being selected, potentially undermining the decentralized nature of the Ethereum network.
- Initial Distribution of Wealth: In a PoS system, validators with larger stakes have more influence and receive higher rewards, which can exacerbate wealth inequality within the ecosystem, favoring early adopters and those with substantial resources.
- Security Vulnerabilities: The Ethereum Merge may introduce new security vulnerabilities as the network transitions to a new consensus mechanism. Vigilance and active addressing of any security issues are necessary.
- Network Finality: While finality enhances security, it restricts the ability to reverse transactions, which may pose challenges in situations where reversals are necessary, such as fraudulent or erroneous transactions.