This article is non technical, if you want complicated stuff you can go to some nerds blogs or articles I’ve added at the end. I concentrate on what we, as collectors or simple users of the Ethereum blockchain, need to know.
Here’s my « Merge for Dummies » resume 🙂
Table of content
- Glossary and definitions
- The merge, what are we talking about
- POW VS POS
- Concretely, what does it change for you?
- The next updates on the Ethereum roadmap
- Sources and additional informations
Glossary and definitions:
I figured I’d start with a few definitions so that we have the basics to go thought the reading. I helped me, if you don’t need them, just jump to next section 😉
Mainnet: is the short for « main network » which is currently the POW.
Beacon Chain: is the consensus layer that introduced POS to the Ethereum ecosystem. The beacon chain evolves in parallel with Ethereum until the merge.
Mining: is the process of « creating a block of transactions to be added to the Ethereum blockchain ». It is also the method of keeping the network secure by the creation, verification, publication and propagation of blocks in the blockchain.
Staking: has a similar purpose to mining, namely to ensure the security of Ethereum. However, the process is different as 32 ETH must be deposited to activate a validation software.
A fork: splits a single cryptocurrency into two or more paths forward. This results in the validation of blocks and transactions that were previously invalid, or vice-versa.
The merge, what are we talking about? :
The merge is the joining of Ethereum’s existing execution layer (the Mainnet) with the proof-of-stake consensus layer, the Beacon chain. It removes the necessity of power intensive mining and keeps the network secure by using the staked ETH.
We’ve heard it before, the energy argument is one of the main criticisms against cryptocurrencies and NFTs. It has long tainted their reputation. Bitcoin mining has been blamed for requiring as much electricity as a country like Finland. Taking this into consideration, “The Merge” promises to improve the image of one of the most promising blockchains in the world.
The exact moment of the merge is a little vague.. for security reasons. Instead of choosing a date or a number of blocks achieved, the merge will start when the total difficulty of mining has been reached. When miners create blocks, they accumulate difficulty. Miners therefore have some control over the timing when they create them. Thus, it was to avoid any influence of miners to manipulate the date that a maximum mining difficulty was decided.
This is an important event, whether you are Ethereum maxi or not, as it is the first time that a blockchain changes its consensus system while continuing to be active (and yes this is huge).
Here is a simple metaphor to understand the Merge:
Imagine a plane flying in the sky, this plane has two types of engines that work in parallel, a thermal engine that consumes energy to operate and burns fossil fuels and a solar engine that uses cleaner energy. At the time of the merge we deactivate the thermal engine and the plane continues to fly.
This change in full flight has been tested on about thirty planes without front passenger.
Mining activity would no longer serve as a method of delivering valid blocks. But instead, proof of stake validators will assume that role and will be charged with the responsibility of processing the validity of all transactions and proposing blocks.
According to the Ethereum foundation, the switch from proof of work to proof of stake should enable a 99,95% reduction in the network’s energy consumption and consequently make the Ethereum blockchain compliant with ESG standards.
ESG standards (Environmental, Social and Governance) are used to assess the extent to which sustainable development and long-term issues are taken into account in the strategy of economic players. In doing so, by “ acting “ for a cleaner consumption, it will surely attract in the Ethereum ecosystem many institutional investors who were slowed down by a lack of environmental awareness. Bingo!
POW VS POS :
*The Proof of Work
The POW is a process that allows a computing devices to demonstrate in an objective and quantifiable manner that it has spent energy. This method is used to select computers for access to a service or a privilege. Among other things, proof of work helps deter denial of service attacks.
In bitcoin and other crypto systems, it is used to prevent the falsification of the unit of account, the bitcoin in the case of bitcoin, and to ensure that the network can reach a consensus regarding the blockchain. In practice, computers are required to solve mathematical problems while entering transactions in the network in order to validate the next block and receive the associated reward. Until now Ethereum has used the same consensus mechanism as bitcoin to validate transactions and blocks on the blockchain.
*The Proof of Stake
In the POS, the system is completely different. There is no more mining device that consume a lot of energy. It will be enough to store 32 eth, secure it in the network and get rewards in exchange.
Proof of stake is often described as virtual mining because the digital tokens play the same role as electrical energy in the POW. Thus the probability of validating a block is proportional to the number of tokens in the validator’s possession. To encourage validators to secure the system, they are rewarded by the issuance of new tokens and by transaction fees in most blockchains. This is called staking. Validators are no longer called miners but forgers.
Concretely, what does the merge change for you:
*Are my $ETH and NFTs safe ?
As soon as the Ethereum Paris update (the merge) will be implemented the next blocks will be generated by a validator of the beacon chain (POS) and in fact, as a simple user of the blockchain or investor, it does not change much and it is recommended to do nothing special for the merge, nor during the merge.
- All your NFTs currently running on the Ethereum chain will shift to the new POS chain.
- $ETH staked on the beacon chain will remain locked.
- Regarding ledgers, people having their ETH, ERC-20 tokens and NFTs on their ledger, there is nothing to do either, the ledger live app will just be paused during the merge until it is done.
*What happens in case of a fork ?
As some people don’t want to leave Ethereum mining behind so easily and the advantages of POS over Ethereum’s current POW consensus mechanism have been debated for some time now we will experience a fork. Why ? Because some people think that POS will centralize the network in the hands of the biggest ETH holders and others, (including some miners) have economic interests to do so.
During the fork, the regular ETH token will represent the chain in Proof of Stake and a new token $ETHW would be created. In practice, it should be distributed automatically to the addresses on the new chain, according to the number of ETH held on the chain in proof of stake. This will also result in a duplication of your NFTs.
If you have $ETHW and regular ETH (POS) at the time of the merge, don’t think that you will be able to double your capital. Indeed, as the majority of the community has chosen to move to POS, many applications have announced not to support a potential fork POW and it should not be worth much. If you are comfortable and know what you are doing maybe you will manage to make a little profit by selling your ETHW quickly, but otherwise it is just better not to touch it, same with your NFTs in POW.
It is also worth mentioning that Metamask works with RPC (remote procedural call) nodes that allow the wallet to connect to a certain blockchain. Each blockchain has a specific ID and it is quite possible that at the precise time of the merge, the ETHW chain will have an ID similar to the ETH in proof of stake. The change will certainly happen automatically, but it is better to check which blockchain you’re using before making a transaction, as this confusion has already happened in the past.
If you really want to be safe, don’t sign anything, be careful with drops and wait a little bit before making any moves. I would consider waiting for an hour just to see how it went.
*Will the transactions cost less ?
No, not at first but the merge is the first step with this objective in mind and it paves the way to lower fees and increase the number of transactions per second. The costs had already been reduced in part with the EIP-1559 update and the ETH burn but the drastic reduction of these costs will come later, the roadmap has been unveiled and Ethereum is only 40% complete.
Today Ethereum can only process 15 to 20 transactions per second and the next updates are suppose to increase the number up to 100 000 transactions per second.
What are the next updates on the Ethereum roadmap:
Once the Paris update is implemented and if the merge is successful, Ethereum will have achieved the most important change in its history ! Thought, the roadmap is not quite complete and more updates will be implemented in the coming years:
*The Surge
After the merge, the next update will normally be the surge (planned for the time being in 2023) and which will consist globally in a fragmentation of the network operations. Ethereum will be divided into fragments and each of them will be given a specific mission at the end of the consensus in order to increase productivity considerably (we can see this as the arrival of Taylorism in the years 1910 for the auto industry)
*The Verge
To explain in a very simple way, the verge will reduce the size of the blocks. In the same time the validators will have less data to store. Thus, as there will be less storage needed and it will be easier to be a validator this will improve the decentralization of the blockchain.
*The Purge
The purge will clean the blockchain of all excessive data which will help to reduce the storage space needed by validators.
*The Splurge
The final phase, the splurge, consists in making continuous improvements to all the previous updates. This phase checks that everything is working properly.
All these steps are necessary to build the technological revolution that Ethereum represents, and they should lead to a drastic reduction in network congestion. It is on these projections that Vitalik predicts that the blockchain will be able to support 100 000 transactions per second (today, Visa is at 24 000 per second).
All these steps are necessary to build the technological revolution that Ethereum is bringing to the table…
There are hundreds of aspects that I’m technically unable to cover. While reading and trying to understand this major event, I realized how complex it is, and decided to share, on my own words, the basics of it, trying to be as factual as possible.
One this is for sure, there will be a « before » and an « after » this update.
Have a good merge 🙂
Lilou @iamlilou5
Head of community & digital @UnlimitArtNFT
Sources and some nerds stuff:
The merge articles:
https://ethereum.org/en/upgrades/merge/#main-content
https://0xfoobar.substack.com/p/ethereum-proof-of-stake
https://www.moonpay.com/blog/ethereum-merge-eth-2
Twitter spaces: https://twitter.com/cloutedmind/status/1569690298363838464?s=46&t=c_mnY25EQX-xEKPojEcQLQ s/o clout
What is mining: https://ethereum.org/en/developers/docs/consensus-mechanisms/pow/mining/#top
What is a fork: https://corporatefinanceinstitute.com/resources/knowledge/other/hard-fork/
