Ethereum’s ‘The Merge’ Is Upon Us

Following the success of the final test merge (Goerli) in mid-August, the Ethereum network would see the implementation of one of its most anticipated upgrades, The Merge.

What Is ‘The Merge’?

Come mid-September, the existing Ethereum mainnet we all know and love (or not if you’re big on the environment) would be merged with the Beacon chain, Ethereum’s new consensus layer which employs the eco-friendly Proof-of-Stake consensus mechanism. This highly anticipated upgrade would see Ethereum do away with its energy-intensive mining in favor of securing the network using staked ETH.

Since 1st December 2020, the Beacon chain has been existing parallel to the mainnet (the execution layer). Unlike the mainnet, it does not process transactions or host smart contracts. Rather, it conducts and regulates the network ofstakers. It also sets the stage for the scalability of the entire network.

A fun analogy would be to imagine the existing mainnet as a Formula race car (the irony is not lost on me) pulling into a pit stop and getting new tires and engine (Beacon chain) and then hopefully, going on to win the race. Only that the merge would happen with zero downtime.

Preparing for the Merge

Staking pool or SaaS (staking-as-a-service) users, holders of ETH and end users DO NOT  have to do anything in preparation of the merge as the blockchain ledger remains intact and should beware of scams saying otherwise.

Staking node operators and providers are to run both the current mainnet chain and the beacon chain and then authenticate both layers with a sharedJWT secret to ensure secure communication. They also need to set up an address to receive transaction fee tips.

Non-staking node operators and infrastructure providers are also required to run both chains secured with a shared JWT secret as not doing so would take them ‘offline’ after the merge is complete. See The Merge readiness checklist for more details.

The merge has been designed to have minimal impact on how smart contracts and Dapps are developed and maintained. However, there are few things developers would want to be aware of going forward. Here’s a great post by Tim Beiko onHow The Merge Impacts Ethereum’s Application Layer.

Post Merge Ethereum

Going Green

Switching its consensus mechanism from proof-of-work to proof-of-stake would see Ethereum cut down its energy consumption by ~99.95%, from 112TWh/yr to 0.01TWh/yr, dramatically reducing its carbon footprint.

Scalability

It’d be great if the merge solved the current issues of high transaction fees and speed, but unfortunately it does not.

Transaction fees are a factor of network demand relative to network capacity and The Merge, essentially only a change in consensus mechanism, has no significant effect on the network capacity. It does, however, set the stage for scaling according to the rollup-centric roadmap.

Staking

The ETH staked in order to create validator nodes and the protocol rewards earned as a result will not be available for withdrawal immediately after the merge. These withdrawals are planned for the Shanghai upgrade which is expected  6 - 12 months after The Merge.

Reactions to the Merge

In recent months, ETH has outperformed BTC posting gains of over 43% since mid-June with BTC continuing its bearish conditions and dropping about 2% in the same time. This is likely due to the anticipation of The Merge.

The mainnet has seen an upsurge in activity and interest as the network added over 70,000 new addresses between August 2nd and September 2nd according to Etherscan.

Interestingly,  Ethereum Classic’s native token (ETC) showed a 28% surge on September 5th, rising as high as $41. The hashrate of the network, which is an indicator of  security in proof-of-work networks, rose by 133% as of September 6th overtaking previous July highs.

A likely reason for this reaction is that the current mining power of Ethereum could be moved over to Ethereum Classic after The Merge.