What is The Merge?
When will The Merge happen?
After The Merge, what should Ether (ETH) holders do?
What is Beacon Chain?
Why switch from PoW to PoS?
What will happen after The Merge?
Can The Merge solve high gas costs?
The risk of The Merge upgrade
One of the things at the forefront of public attention is Ethereum’s Merge, which will take place this September. Learn all about Ethereum’s Merge, its importance, and how it will affect the Ethereum network and the ETH coin in this article.
What is The Merge?
The Merge is an Ethereum upgrade that switches its consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS). Whereas PoW relies on hash power to validate transactions on the blockchain (i.e. mining), PoS relies on the staking of capital via smart contract as collateral against bad actors or poor performance of a validator.
This will result in better energy efficiency, reduced centralization risks, improved compatibility with scaling upgrades such as sharding, and lower barriers of entry in creating new blocks.
When will The Merge happen?
The Merge was originally scheduled to take place in the third quarter of 2022 with a soft deadline of 19 September 2022. However, the exact date and time of The Merge is yet to be revealed as it is contingent on the hashrate of existing miners for ETH.
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All three testnet merges have been successful which suggests that the Merge will indeed take place sometime in mid to late September.
After The Merge, what should Ether (ETH) holders do?
ETH coin holders do not need to do anything. ETH on the Ethereum network currently under the PoW mechanism will not be affected as the upgrade is on the protocol level hence there will not be any impact to anyone’s holdings. Any funds held within your wallet will still be accessible after The Merge. No actions will be required on any holders’ part.
As The Merge approaches, scammers tend to take advantage of users during the transition. Keep in mind that there is no new token coming along with the upgrade. Accordingly, no action will be required on the users’ end.
What is Beacon Chain?
The Beacon Chain is an Independent network with full PoS Consensus implementation. It works in parallel with the current Ethereum mainnet which still uses the PoW mechanism. The Beacon Chain allows for the PoS chain to work concurrently with the PoW chain without one impacting the other.
The Merge specifically refers to when the PoS Beacon Chain supersedes the existing PoW chain as the main mechanism for consensus.
Why switch from PoW to PoS?
The reasons why the Ethereum network decided to launch The Merge are as follows
● Increased energy efficiency
The Merge will reduce power consumption by 99.95% as miners will no longer be required to ensure the security of the blockchain.
● Reduced network centralization and barriers to entry
Currently, on PoW, only ETH miners who provide hash power – often using expensive hardware GPUs – will be rewarded for helping to secure the blockchain. However, Post Merge, no hardware will be required to help validate the network via Staking on PoS. As a result, there are lower barriers to entry which should also allow more users to join and increase the decentralization of the network away from the current model of a high concentration of miners.
● Opportunity to scale up transactions
Nodes, under the PoS mechanism, allow users to participate in the network. This unlocks a way to scale transactions by creating blocks when working with the Beacon Chain between Validators. This is a transition to a combination of different Consensus mechanisms on the network.
What will happen after The Merge?
Here are the effects of The Merge on each party
ETH miners
ETH miners will no longer be able to mine under the PoW mechanism which forces them to either change to mine a different cryptocurrency or stop mining outright. This is a result of the shift to PoS which will require ETH holdings to be staked to earn yield instead.
The impact on investors
ETH emissions are likely to be significantly reduced which will lead to a longer-term price appreciation in the times that ETH supply is deflationary. ETH has already had a greater than 30% price rally post testnet Merge. With some analysts suggest a rally even higher, although it’s anyone’s bet on which direction the market will go.
Ethereum is the second most popular cryptocurrency investment by Market Capitalization. Regardless of whether the upgrade goes as planned, ETH is still likely to be one of the top coins to keep eye on.
Can The Merge solve high gas costs?
The Merge won’t be able to reduce the cost of using the network to transact (aka gas fees) as it only changes the consensus mechanism from Proof-of-Work to Proof-of-Stake. As the change in consensus has no impact on network capacity or throughput, there will be no impact to gas fees in the short term.
However, other Ethereum roadmap developments are designed to help alleviate this problem. One of these is called sharding, which will improve the network’s ability to scale for larger transaction volumes.
The risk of The Merge upgrade
According ethmerge.com, The Merge upgrade changing from PoW to PoS is comparable to changing the fuel powering a jet mid-flight. However, several precautions have been taken such as the operation of the Beacon chain – ETH’s parallel chain running on PoS – concurrently with the existing PoW chain since December 2020 without issue.
The 3 testnet merges have also taken place successfully which sets a strong foundation for the transition on the mainnet.
Conclusion
The Merge is a major change in Ethereum because it directly affects the network’s consensus mechanism used to ensure the security of the blockchain. This upgrade will have no impact on the scalability of the network in the short term but will allow for future upgrades that do address this. The change will affect all holders of ETH with a particular impact on miners- including sharding.
Disclaimer
The content of this article has been compiled and compiled from various reliable financial sources. To provide basic knowledge to the general public only. However, every investment has risks. Investors should study and understand asset characteristics. Return conditions and the risk of that asset including assessing risks before making investment decisions
