The Ethereum Merge, and What it Means for Crypto

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One of the most highly anticipated developments in the world of cryptocurrencies in recent times is Ethereum’s monumental shift from proof-of-work (PoW) to proof-of-stake (PoS), known as “The Merge.” This transition marks a pivotal moment for Ethereum, currently the second-largest cryptocurrency by market capitalization. In this article, we will explore what this crucial update means for Ethereum and how it could shape the future of the cryptocurrency landscape.

How The Merge Works
Ethereum currently operates on a proof-of-work Execution Layer (The Mainnet), which is the main public blockchain that Ethereum has used since its launch in 2015. This can be described as a “Layer 1” blockchain since it’s the foundational system or blockchain.

In December of 2020, Ethereum developers set the Consensus Layer (The Beacon Chain) live to run on top of the Mainnet, which is why it is called a “Layer 2” solution. This update set up the Ethereum blockchain for staking and scalability in future updates.

The event known as “The Merge” is when the two layers combine, making the Ethereum Mainnet operate on a consensus-based proof-of-stake system but keeps addresses and transaction history intact. Current owners of Ethereum do not have to do anything to prepare for the Merge.

The combining of the two layers will take place in two updates. The first update, Bellatrix, is a network upgrade to the consensus layer and will occur on September 6th. It will be followed by the Paris update, which takes place on the Execution Layer at a Terminal Total Difficulty of 58750000000000000000000 (which should happen between Sept. 10th & 20th) and merges the two together. Once the new structure finalizes a block on the Consensus Layer, the Merge is considered complete!

Diagram of How the Merge Works (Source: Ethereum.org)

What are the Benefits of The Merge?

Ethereum’s goal in merging the two layers is to improve its environmental impact, transaction time, and accessibility. 

Environmentally Friendly
The Merge addresses one of the biggest criticisms of proof-of-work cryptocurrencies: their environmental impact. Since proof-of-work cryptocurrencies need to be mined, it can take a lot of energy to power the entire network. However, with the Merge making the network proof-of-stake, Ethereum’s energy use will be reduced by 99.95%, according to the Ethereum Foundation.

Updated Information: The Ethereum Merge Today

Since the publication of this article, Ethereum’s Merge has occurred and its impact on crypto has been realized. 

  •  According to Ethereum.com, “The Merge reduced Ethereum’s energy consumption by ~99.95%.”

How The Ethereum Merge Has Impacted Crypto’s Carbon Footprint

 According to Ethereum.com, “CCRI estimated that The Merge reduced Ethereum’s annualized electricity consumption by more than 99.988%. Likewise, Ethereum’s carbon footprint was decreased by approximately 99.992% (from 11,016,000 to 870 tonnes CO2e).” Implementing proof of stake, Ethereum’s environmental impact has massively improved.

Transaction speed & volume
Another important update the Merge brings is the process of sharding. This process segments and distributes the network into smaller, parallel chains to spread the load across the network. Sharding will reduce network congestion and lower transaction fees, which is something Ethereum has suffered from in the past. The number of transactions per second that the network can process will increase drastically, from about 30 transactions per second to a potential 100,000 transactions processed per second.

What The Merge Means for Crypto
Cryptocurrency can be used by anyone, anywhere, at any time. However, transactions can be particularly expensive when it comes to mining fees, which Ethereum has dealt with for years. Vitalik Buterin, the founder of Ethereum, said that “If you want to actually have a world where we can have blockchain activity happening without needing to trust centralized exchanges for everything, then we just have to learn how to make blockchains cheaper.” The Merge is just the beginning of blockchain technology becoming more usable and accessible by everyone worldwide.

Future Improvements

Scaling crypto has been a priority for the company since its inception. To actualize the platform, Ethereum has made a road map for future improvements. This road map includes detailed upgrades for cheaper transactions, stronger security, an improved user experience, and anticipating developments for the future. 

Cheaper Transactions and Cheaper Data

While the Merge has made transactions up to eight times cheaper than they used to be, there are innovations on the horizon with the potential to batch transactions together on a larger scale. 

According to Ethereum.com, “Today’s rollups are ~3-8x cheaper than Ethereum layer 1. ZK-rollups will soon lower fees by ~40-100x. Upcoming changes to Ethereum will provide another ~100-1000x of scaling. Users should benefit from transactions costing less than $0.001.”

Since transactions are public, Ethereum’s platform faces the challenge of storing large amounts of data. Data needs to be stored permanently. Ethereum’s road map proposes “blob” storage to decrease storage fees. Blob transactions solve the issue of storing permanent data: According to Ethereum.com, “Storing rollup data long term becomes the responsibility of the people that need it, such as rollup operators, exchanges, indexing services, etc.” Blob transactions are part of the new upgrades Ethereum has been working on. 

Stronger Security

While Ethereum is regarded as one of the most secure crypto platforms, there are still improvements and developments in its future. Preventing hacker attacks and preventing censored transactions are goals elaborated on in the road map details below. These steps are listed on Ethereum’s roadmap for improving the future of the platform. 

Understanding the context behind these platform evolutions is important. Here is what Ethereum has to say about the future of ETH. 

  • Ethereum.com states that “Reducing the time Ethereum takes to finalize blocks would provide a better user experience and prevent sophisticated ‘reorg’ attacks where attackers try to reshuffle very recent blocks to extract profit or censor certain transactions.”
  • Ethereum.com also states that “Decentralization prevents individuals or small groups of validators from becoming too influential. New staking technologies can help to ensure Ethereum’s validators stay as decentralized as possible while also defending them against hardware, software, and network failures.”

Improving the User Experience: Dropping Barriers

For Ethereum to become approachable, the platform needs to simplify its user experience. This is an issue that Ethereum’s engineers and developers have a keen eye on. One user issue described in their road map is the complex entry point: the private and public keys. Ethereum.com claims “…there must be a straightforward, frictionless way for a user to take custody of their assets and keep control of their data without having to understand public-private key cryptography and key management.” The proposed solution uses smart contract wallets to secure the users’ accounts while improving their functionality.

Another user issue that Ethereum is working to dissolve is the complex knowledge required for running a node and the user’s resulting reliance on intermediaries. They state, “…running a node right now requires technical knowledge and substantial disk space, meaning many people must trust intermediaries instead.” This issue in the user experience is driving Ethereum’s goal to make the process of running nodes much easier to learn and much less technical to conduct. The road map solves the issue by tackling data storage and implementing technologies that make more humble storage methods acceptable.

Ethereum’s awareness of its potential for success through widespread adoption feeds the road map we have described. The platform emphasizes that “Decentralization is not possible if these benefits are only available to users with expensive hardware.” The core of cryptocurrency is its decentralized nature, and Ethereum’s future is focused on making crypto’s technology more accessible. 

So, what does the Ethereum Merge mean for the crypto world? Ethereum’s Merge represents a significant shift in the cryptocurrency landscape. It demonstrates the feasibility and advantages of transitioning from PoW to PoS for a major blockchain platform. This transition has the potential to influence other blockchain projects and contribute to the broader adoption of energy-efficient and scalable consensus mechanisms in the cryptocurrency ecosystem. Already, Ethereum’s road map highlights the fact that Ethereum’s Merge is likely to stimulate further innovation and development within the Ethereum ecosystem and the broader cryptocurrency space. It will allow developers to focus on building and improving the network without the constant energy demands associated with PoW mining.

The Ethereum Merge is not just a significant event for Ethereum but also for the entire cryptocurrency ecosystem. It showcases the potential for blockchain platforms to evolve towards more sustainable and efficient consensus mechanisms, reducing environmental impact while enhancing scalability.

As Ethereum’s Merge has successfully reduced energy consumption and aims to improve transaction speeds, lower fees, and enhance accessibility, it sets a powerful example for other blockchain projects to follow suit. The transition to PoS, along with future improvements outlined in Ethereum’s roadmap, holds the promise of making blockchain technology more usable and accessible to a global audience.

As the crypto world witnesses Ethereum’s advancements, questions arise about how other blockchain platforms will respond. Will they also adapt and prioritize sustainability and scalability, or will they maintain their current consensus mechanisms? As Ethereum’s upgrades continue to unfold, what other innovations and breakthroughs can we anticipate in the cryptocurrency space? Will the quest for cheaper transactions, stronger security, and an improved user experience drive further advancements?

The future of cryptocurrency is undoubtedly dynamic and full of possibilities. It hinges on the choices made by developers, the demands of users, and the broader adoption of blockchain technology. As Ethereum’s Merge signals a significant step forward, it prompts us to consider the broader implications and ask critical questions about where the crypto world is headed. 

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