What is Ethereum Merge? An inevitable evolution of Ethereum

What is Ethereum Merge?

Ethereum Merge is an important event of the Ethereum network as the blockchain will be upgraded to use the next-generation consensus. After the upgrade, it will run with the Proof-of-Stake (PoS) consensus instead of the high energy-consumed one, Proof-of-Work (PoW).

Ethereum nodes operated by miners around the world will have to shut down due to the Merge. This has a massive impact on ETH miners since they will have no incentives to run nodes. However, they can generate incomes as Ethereum validators.

At the moment, Ethereum still runs as a PoW blockchain like Bitcoin. It has a wide network of high-spec computers to spend effort in verifying transactions to earn block rewards in ETH. After the Merge, the PoS consensus comes in Ethereum, and investors can stake their ETH to earn ETH rewards based on their stake.

The Ethereum developer team announced to deploy Ethereum Merge in Q2 2022, which might be delayed due to any reason.

In the essence of The Merge

In the essence of the event, Ethereum Merge is the alternative of PoS Beacon Chain to PoW Ethereum. Beacon Chain, developed by Ethereum Foundation, is a separate chain using PoS consensus, and it went mainnet in December 2020. Since the launch, it has been parallelly running with Ethereum, and it is planned to fuse with Ethereum in the future.

After almost a year in operation, Beacon Chain has well-performed numbers, as follows:

• Active validators: >326,000.
• ETH Staked on Beacon: >10,400,000 ETH.
• Staking Rewards: 4.81% APR (source: stakingrewards.com).

After Ethereum merges with PoS Beacon Chain successfully, Shard Chains will be the next upgrade of Ethereum, scheduled to launch in 2023. Shard Chains will give Ethereum better scalability by bringing 64 new blockchains for high-performance throughput.

Shard Chains require running on the PoS consensus mechanism to ensure the safety and stability of the entire Ethereum network. The road to Ethereum 2.0 is still very long. According to the plan, it can also take several years to complete.

Why Ethereum Merge?

The Ethereum development team has been building plans to upgrade Ethereum to Ethereum 2.0 (known as Consensus Layer) for a long time. The transition from Execution Layer (POW) → to Consensus Layer (POS) is expected to bring a lot of value to the entire Ethereum ecosystem while retaining the decentralization edge of the blockchain.

At the moment, Ethereum has scaling solutions built by 3rd party projects such as Rollups, Sidechains, etc. These solutions are joining hands to solve the challenges of Ethereum (Trilema: Decentralization, Security, Scalability).

Ethereum will turn into a new leaf with Ethereum Merge

Decrease the power consumption by 99.95%

Currently, Bitcoin and Ethereum are so controversial that these two PoW networks consume a lot of energy. In particular, the sources of energy supplied to the computational crypto farms mostly come from fossil fuels, which detrimentally affect the global climate.

Ethereum can stop the adverse narrative of energy consumption after the Merge.

Ethereum Merge will go smoothly

This upgrade of Ethereum can be said to be the turning point of the leading smart contract blockchain in the crypto world. However, on the homepage of the Ethereum development team, there is a guarantee that the transition from PoW → PoS will take place as planned.

Users’ experience will be guaranteed after the Merge since all data and states of Ethereum will be transferred.

Eliminate the exploit risks

Ethereum switching from PoW to using PoS will increase the total throughput of the Ethereum network. With these capacity improvements, projects built on Ethereum will be more advantageous than before as costs and speeds are significantly improved.

At the moment, Ethereum has many Layer-2 scaling solutions from 3rd companies that will increase the unreliability of the bridge between L1 and L2.

Increase the TPS up to 100k after Data Sharding

As always, any upgrade will resolve or improve the issues of older versions. The Ethereum Foundation has stated that the upgrade will significantly improve Ethereum's TPS from 30 TPS up to 100,000 TPS after Data Sharding. Data Sharding is the following phase of the Merge. Ethereum's consensus will change from PoW to PoS after the Merge.

With this warp speed upgrade, Ethereum has the ability to smoke other fast blockchain platforms without any gitch or shutdown.

Market Sentimentals

ETH miners will be “unemployed”

Currently, Ethereum is still using the PoW mechanism, and miners are operating Ethereum nodes to participate in the verification of blocks and will receive rewards in ETH. However, Ethereum Merge will greatly affect the incentives of miners.

After Ethereum Merge, the PoW consensus of Ethereum will come to cease. The PoS consensus coming to Ethereum will contribute benefits to the development of the entire ecosystem in the future.

In terms of miners, when they lose their source of income, they will be the most affected after Ethereum Merge. However, it is inevitable for Ethereum to move towards blockchain 3.0 with a PoS mechanism because depending on Layer 2 solutions will contain many risks.

Become validators instead of miners

After the PoS upgrade, Ethereum will allow investors to stake their ETH assets directly on the blockchain to earn ETH rewards with an APR of 4.7%. This will be a big incentive for ETH holders looking for a stable and passive income with high reliability in the long term.

To start becoming a validator, investors need at least 32 ETH. If you own no more than 32 ETH, you can start staking on Beacon Chain. However, the staking transaction is irreversible.

Furthermore, at the moment, you can’t withdraw your fund once it is staked. The withdrawal feature will be available in an upgrade after the Ethereum Merge. As a result, investors should consider all of the mentioned notes before staking on Beacon Chain.

Keyword "Ethereum Merge" on Google Trend

Google Trend is an indispensable tool used as an indicator showing the collective level of interest in any specific keywords. In March 2022, the “Ethereum Merge” keyword has spiked. This means the upcoming major event of Ethereum in Q2 2022 is getting traction since it is being searched on Google.

People in Australia, Singapore and countries in North America are engaging in this upcoming huge event of Ethereum. Following that, European citizens are also curious about Ethereum Merge. Meanwhile, crypto investors in Asian countries may not pay much attention to this important milestone of Ethereum.

To reiterate, Ethereum Merge is due to happen in Q2 2022. The date is yet to disclose.

Conclusion

Ethereum has its turning point to change from a blockchain 2.0 to a blockchain 3.0 with the PoS consensus. If Ethereum successfully merges with Beacon Chain, it will open a whole new chapter for the blockchain as well as the ecosystem.

Understanding the importance of the event, we will keep following the event and will ship the latest updates to the community.