Everything you need to Know about Ethereum Merge
Ethereum’s biggest ever software upgrade, The Merge, will take place in just two days. So here's a quick guide on what it is.
Ethereum Merge is literally two days away. Hence, today we will revise our understanding or learn freshly about the Ethereum Merge, possibly crypto’s most significant event in recent times. So important that even Google is counting down Ethereum Merge.
In today’s newsletter we shall discuss:
What is Ethereum Merge?
The impact of it.
The myths around the Merge.
The date of Ethereum Merge is estimated to be September 15, 2022, when the proof-of-work Ethereum mainnet will merge with the proof-of-stake beacon chain. Ethereum developers successfully launched Bellatrix a week ago, an upgrade that initiates the merge on the beacon chain’s backend consensus layer. We are now one step away from the mainnet merge.
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What is Ethereum Merge?
Ethereum merge is the transition of Ethereum consensus from proof-of-work to proof-of-stake or PoS model. In PoW, miners use special hardware that consumes electricity to produce a block and secure the network. They are rewarded with newly generated ETH plus transaction fees. In PoS, validators secure the network by staking their ETH. These validators do not consume much electricity, in fact, it is estimated to be 99.5% less than the PoW energy requirement.
The transition to PoS will make Ethereum energy efficient and sets it up for higher scalability with features like sharding later on.
Ethereum PoS transition was divided into two steps.
Launch of Beacon chain in December 2020
A separate PoS chain parallel to Ethereum Mainchain was launched to test PoS with Ethereum mainnet without having any impact on the chain. The Beacon chain gave time to stakers so that before the Merge, there was a sufficient amount of ETH staked on the PoS chain. It will secure the PoS chain when the Merge happens.
At the time of writing, the Beacon chain has more than 415k validators with over 13 million ETH staked.
The event on Sep 15, will merge the Beacon chain with the current PoW chain. Following this, Ethereum will fully transition to the PoS model of consensus.
Also, Ethereum Merge is the first of five major upgrades on Ethereum that are estimated to be deployed by 2026.
The merge will reduce the issuance of Ethereum to ~1600 ETH per day from ~13000 ETH per day today. Combined with the EIP 1559 burning, Ethereum may soon become deflationary in nature.
Ethereum Merge will take place when the targetted terminal total difficulty is hit.
Terminal Total Difficulty
At the time of the Merge, the execution clients on Ethereum chain will start listening to PoS blocks as soon as the chain has accumulated enough Terminal Total Difficulty. Terminal Total Difficulty is the sum of total proof of work collected on PoW chain. The current trigger for Merge is set at 58750000000000000000000 and it is likely to hit that on Sep 15, 2022.
At the time of writing, the hash rate is 857.1 TH/s and the estimated merge time is Sep 15, 2022, at 03:27 AM UTC. The time may change as per the hash rate.
This is the first time an upgrade is scheduled at TTD instead of block height.
The Impact of Merge
After the Merge, all applications running on top of Ethereum should run the same way as before. The transactions history and state are both fully maintained. Any LPs or loans on any of the applications will remain unaffected.
A lot of other things will change for Ethereum post-merge
The time to mine a block is divided into fixed slots of 12 seconds. Slots may miss a block so on average time per block may be higher. It is around 13 seconds for PoW. After Surge’s sharding implementation, the throughput of the network may increase dramatically.
Harder to attack the network due to economic security.
GPUs may become cheaper, due to no longer being needed for mining Ethereum. There is a chance for ETC or other cryptocurrencies using ETHASH mining algorithm to take dominance in the PoW segment.
Decrease of supply in Ethereum over time.
Certain things do not change for Ethereum after the Merge:
No Reduction in Gas Fees.
No major impact on block time or throughput.
These are expected to improve with further upgrades to the network.
Ethereum Proof of Work Hard Fork:
Ethereum's proof-of-work (PoW) powered by GPUs generated approximately $19 billion in revenue last year for ETH miners. These revenue streams are in danger with the Merge approaching.
A group of current Ethereum miners are planning to fork the network so they can continue operations after The Merge. Miners will operate this chain separately from the proof-of-stake one.
The official announcement on Twitter says, “ETHW mainnet will happen within 24 hours after the Merge”. The exact time for the chain to go live will be announced 1 hour before.
Several exchanges have expressed interest in or have already listed the forked ETHW, including Poloniex, Bitfinex, and Coinbase.
If you are holding ETH at Merge, you may receive the exact amount of ETH on the ETHW chain when it goes live.
The ETHW chain will have 2048 empty blocks mined at first. This offset will also prevent duplicate blocks on both ETH and ETHW and ensure enough time for the chain ID which is the unique identifier for blockchains are switched successfully.
Clarifications on Ethereum Merge
Ever since the discussion on Ethereum Merge began, there are several speculations in the market and some traders are rightly confused as to how they will be impacted. So let us clear that out for everyone.
Zero Downtime: As an Ethereum user, you will have no impact on your transactions or day-to-day processes. They will work exactly as before and the network will not have any shutdowns or downtime.
Transaction Fees: The Merge will not reduce transaction fees for Ethereum Network.
Transaction Speed: Post Merge, the speed of transactions or the number of transactions processed per second (throughput) will not change. More upgrades to the network are needed to make this happen.
Staked Ether: If you’re a holder eager to withdraw your staked ETH, note that your funds will be locked for at least 6-12 months after The Merge until the Shanghai upgrade is implemented.
New Token: If and only if the Ethereum PoW is successful, all Ethereum holders have the exact amount of ETH on the PoW chain, that they may hold, trade, transfer or sell where it is supported. However, it will have zero impact on the PoS chain which will remain the mainnet for Ethereum Network.
That my dear reader is the end of today’s letter on the upcoming Ethereum Merge. Let us all gear up for the Merge and hope for the best.
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