What is Ethereum merge ? And what it means for Ethereum and why it matters? Update on Ethereum’s Merge.
The Ethereum Merge represents the joining of the existing execution layer1 Ethereum (the Mainnet we use today) with its new proof-of-stake consensus layer, “the Beacon Chain”.
Ethereum’s transition from PoW to PoS could last for years, this transition began in December 2020 afterwards several hard forks followed. The first was the Berlin hard fork which took place in April of 2021 following the launch of the Beacon chain.
On 26th of July Ethereum’s 10th shadow fork actually went live, a full 26 hours ahead of schedule. Shadow forks are a focused trial run of aspects of the merge; they practice making one or two specific changes to the blockchain that will occur down the road. The Altair hard fork was the next in August as the first major update to the Beacon chain.
London followed shortly after in August 2021, and with it came the EIP-1559 fee model. The ETH burn started with this upgrade and has changed the way miners are rewarded for mining blocks on the network.
Ethereum’s final testnet, Goerli, which is scheduled for today August 11th, and it will be the third and final test required before the merge is ready to execute.
The switch from proof-of-work consensus mechanism to a less energy usage to proof-of-stake mechanism, energy consumption should drop by more than 99.95% and it will lead to better scalability.
Ethereum Mainnet – with all it’s accounts, balances, smart contracts, and blockchain state – continues to be secured by proof-of-work, even while the Beacon Chain runs in parallel using proof-of-stake. The approaching Merge is when these two systems finally come together, and proof-of-work is replaced permanently by proof-of-stake.
The issuance of ETH is the process of creating ETH that did not previously exist. The burning of ETH is when existing ETH gets destroyed, removing it from circulation. The rate of issuance and burning gets calculated on several parameters, and the balance between them determines the resulting inflation/deflation rate of ether. Mining rewards 13,000 ETH/day pre-merge after The Merge, only the 1,600 ETH per day will remain, dropping total new ETH issuance by 90%.
Developers are currently working to a soft deadline of 19th September 2022, but this could change depending upon the success of the final testnet merge (Goerli) that starts today according to the schedule.
The Merge is a change of consensus mechanism, not an expansion of network capacity, it will not result in lower gas fees and transaction speed will mostly remain the same on layer 1 Ethereum mainnet. The proof-of-work consensus target was to have a new block every 13.3 seconds. On the Beacon Chain, slots occur precisely every 12 seconds each, of which is an opportunity for a validator to confirm a block. Staking withdrawals are not yet enabled with The Merge. The following Shanghai upgrade will enable staking withdrawals.
After “the Merge” ETH issuance is the rate at which ETH is burned. For a transaction to execute on Ethereum, a minimum fee must be paid, which fluctuates continuously depending on network activity. The fee is paid in ETH and is required for the transaction to be considered valid. This fee gets burned during the transaction process, removing it from circulation. The fee burn implemented by the London upgrade, validators can also incur penalties for being offline or they can be slashed for breaking specific rules that threatens network security. These penalties result in a reduction of ETH from that validator’s balance, which is not directly rewarded to any other account, effectively burning it from circulation.
After merging ‘Eth1’ and ‘Eth2’ into a single chain, there will no longer be two distinct Ethereum networks, there will only be one Ethereum Blockchain with consensus mechanism Prove of Stake. Sharding plans have shifted to finding the most optimal way to distribute the burden of storing compressed calldata from rollup contracts, allowing for exponential growth in network capacity. This would not be possible without first transitioning to proof-of-stake.
After “The merge” Sharding will be later introduced as update in the mainnet, that means it will splits validation work into smaller amounts and the network will handle more transactions, it means it will be more scalable and it could increase network participants by allowing people to run Ethereum on small devices, like phones.
After “the Merge” it won’t be possible to verify transactions on Mainnet through mining. Instead, validators on the Beacon chain will then confirm all new transactions. The rate at which new coins enter circulation will decrease by about 90% because mining rewards, which are larger than staking rewards, will cease.
Existing dapps will still interact in nearly the same way and will require minimal updates.
As Mainnet gets merged with the Beacon Chain, it will also merge the entire transactional history of Ethereum. This means that you don’t need to do anything, your Ethereum coins or other ERC-20 tokens are safe.
In order to improve data-availability and bandwidth, users should look to rollups and L2s to scale immediately and to pay lower transactions cost (gas fees) until the sharding is implemented.