What is The Merge?
The Merge is the most significant upgrade in Ethereum history. When the process is done, Ethereum will officially replace ETH mining Proof-of-Work (PoW) mechanism with Proof-of-Stake (PoS) mechanism. The upgrade will make Ethereum a more scalable, decentralized, secure blockchain, and be environment friendly by more than 99%.
What are Proof-of-Work and Proof-of-Stake?
Proof-of-Work (PoW) is the process by which miners validate, aggregate transactions, and broadcast them to the network of nodes on Bitcoin blockchain. The process requires a miner to compete with others to find a valid cryptographic hash. That’s why it’s called Proof-of-Work – proof that a miner has consumed energy to find the cryptographic hash and gained the right to aggregate and validate transactions.
In contrast, Proof-of-Stake (PoS) is created to solve the problem of Proof-of-Work’s energy consumption. With this mechanism, the network will rely on the ETH balance that the validator is staking to choose who can gain the right to validate transactions and receive rewards.
Proof-of-Stake was first proposed in 2011 on the BitcoinTalk forum. Vitalik Buterin borrowed the idea to build a defense mechanism for the Ethereum blockchain instead of Bitcoin’s PoW.
At that time, Vitalik thought the transition from PoW to PoS would only take a year. So far, it has lasted 6 years for the process to come to an end with the mainnet upgrade merge scheduled to roll out this September.
Path to The Merge
Ethereum has gone through more than 10 forks and updates since the whitepaper released in 2013. The most term mentioned during the process is “difficulty bomb”. This is a scheme to increase the difficulty of generating cryptographic hashes in the PoW mechanism, that miners will spend more energy validating and aggregating transactions.
The intent behind the difficulty bomb is to incentivize miners to switch from PoW to PoS. However, when the PoS blockchain was not ready for launch, the difficulty bomb has been an obstacle for Ethereum users as it increased the cost too high. In previous updates, the solving of this problem was always postponed to focus on perfecting new features for the blockchain platform.
In October 2020, the staking smart contract on PoS blockchain was deployed on Mainnet. As such, users need to stake a minimum of 32 ETH into the deposit contract to become a validator on the ETH 2.0 blockchain (blockchain using PoS, aka Beacon Chain). By the end of November 2020, the ETH 2.0 contract has reached a full stake of 16384, which is eligible for the Beacon Chain to start launching.
On the first day of December 2020, Beacon Chain officially produced the first block.
Still, the Beacon Chain using PoS and Ethereum’s Mainnet at that time still operated independently: the Mainnet (called the execution layer) would be responsible for validating and aggregating transactions, and the Beacon Chain (the consensus layer) would take the role in controlling the consensus mechanism between validators.
From the end of 2020 till now, the Ethereum team has conducted many updates to improve the issue of gas fees, the most two prominent are:
- Berlin Update: Starting from block number 12,244,000, this update improves gas fees for some Ethereum tasks and allows new transaction types.
- London Update: Launching from block number 12,965,000, this is an important update that adopts EIP-1559 to make transaction fees more predictable for users and to apply deflation to ETH.
By October 2021, the first update for Beacon Chain called Altair was officially released, introducing sync committees for light client functionality and reforms to validator rewards/penalties.
The other two updates set in late 2021 (Arrow Glacier) and mid-2022 (Gray Glacier) mainly revolve around delaying the problems of difficulty bomb until Beacon Chain is ready to merge with Ethereum’s current PoW Mainnet.
Around June 2022, the merger was successfully deployed on Ropsten and Sepolia testnets. By August, Ethereum completed its third and final testnet merger Goerli, marking the blockchain’s last major milestone before the transition to an energy-efficient proof-of-stake (PoS) model. September 15-16 is set by Ethereum developers as the estimated time The Merge will take place.
Along with The Merge, these are four other important categories to form a solid system for the stability of new Ethereum:
- The Surge: a scaling solution that would break the network into separate partitions called “shards,” designed to spread the computational load on the mainnet.
- The Verge: the introduction of the so-called “verkle trees.” It involves an upgrade to Merkle proofs and is intended to optimize data storage for Ethereum nodes.
- The Purge: concerns data storage for validators and reduces hard drive space that’s required for the validators, streamlining network congestion.
- The Splurge: the last upgrade in the pipeline and is intended to deliver a string of miscellaneous updates that are made to ensure the overall smoothness of how the network runs.
What Will Happen After The Merge?
After The Merge, validators still can’t be able to withdraw staking ETH on Ethereum until the Shanghai update is rolled out. The exact time for the update to be implemented is not officially confirmed, just estimated to be 6-12 months after The Merge.
The Ethereum team will still continue to add many new updates after The Merge, such as Single Secret Leader Election – aims to select a single proposer using a cryptographic procedure that ensures that only the proposer knows when they are selected; Proof-of-Custody – helps encourage node to actively validate data in block, increase wallet/smart contract address size from 20 to 32 bytes to limit the possibility of attack by quantum algorithms;… Especially, after the Shanghai update takes place, users will have the right to withdraw an amount of deposited and staked ETH on Ethereum to their wallet.
Closing Thoughts
Ethereum’s transition to a PoS mechanism comes with numerous benefits. ETH holders can stake their holdings and earn rewards by validating transactions. Additionally, the Merge will prepare Ethereum for future upgrades that might make the network more scalable, secure, and sustainable.
However, with a huge amount of mixed views on this process, we’ll have to wait and see if The Merge is enough to help Ethereum stay strong in the unpredictable crypto space.
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