The Ethereum Merge is Coming

After years of planning and development, the Ethereum Mainnet is anticipated to migrate from its existing PoW consensus mechanism to its new PoS validation structure on 15th September 2022. The Merge, announced by Ethereum.org, will improve the scalability and sustainability of the Ethereum network. In this article, we will explore some of the basic concepts of Ethereum, the significance of this Merge, and the impact it may have on you as a holder of ETH.

What is Ethereum?

Ethereum is a programmable blockchain, which is a software platform that can be re-coded to build new uses for the technology. The network’s digital asset, Ether (ETH), is the second largest by market capitalisation.

Ethereum has a feature called smart contracts. A smart contract automatically executes the terms of an agreed contract, without the need for any third party. It is useful for many industries, including e-commerce, e-gaming, and financial services.

What is the Mainnet and PoW?

According to Ethereum.org, the “Mainnet is the primary public Ethereum (ETH) production blockchain, where actual-value transactions occur on the distributed ledger. When people and exchanges discuss ETH prices, they’re talking about Mainnet ETH.”

The Mainnet currently operates on a PoW consensus mechanism that enables the Ethereum network to agree on things like the order of transactions or account balances. This avoids the possibility of double spending, and ensures that the Ethereum blockchain is very secure.

PoW relates to the underlying process that miners undertake to add valid blocks to the blockchain. As more blocks are added and the blockchain gets longer, the work gets harder. This means miners need to consume larger amounts of computing power to validate new blocks, which in turn is very energy intensive and not very sustainable.

What is the Beacon Chain and PoS?

The Beacon Chain is Ethereum’s new PoS blockchain, and has been described by Coinmarketcap.com as the “spine that supports the entire Ethereum 2.0 system”. Like Mainnet, the Beacon Chain is the consensus mechanism of the network, responsible for creating new blocks, validating them, and rewarding validators with ETH for keeping the network secure.

It was deployed in December 2020 and has been running parallel to Ethereum’s Mainnet, confirming on-chain data, but through the PoS consensus mechanism. Running the chain separately, allowing for the identification of bugs or development issues prior to the Merge.

Being a PoS network, the Beacon Chain uses less energy than the PoW protocol (~99.95% less), as transactions and blocks can be approved quicker without the need to solve complex equations. Blocks on a PoS chain are said to be ‘forged’ as opposed to ‘mined’.

The Beacon Chain has been in operation for 19 months, testing its integrations through the various networks that Ethereum has deployed. Most recently they completed a Merge on the Goreli testnet on August 12th, 2022 – the largest of Ethereum’s test networks. This signalled the final hurdle before a Mainnet migration can occur, which is anticipated to take place on the 15th of September 2022.

What is The Merge?

Around 15th September 2022 (at TTD 58750000000000000000000), data held on the Mainnet (the existing PoW consensus protocol on Ethereum) will be merged with the Beacon Chain, and the new PoS consensus will become the engine for block production on Ethereum. After the Merge has successfully taken place, mining will no longer be the means of producing valid blocks on the network, and all future block validation will be processed through PoS.

No history is lost from the blockchain. As Mainnet gets merged with the Beacon Chain, so too will the entire transactional history of Ethereum.

What are the Benefits of PoS?

The move to a PoS consensus mechanism will provide the Ethereum network with heightened security, reduce energy consumption (by 99.95%* due to less computational power) and provide greater scalability opportunities not currently available under PoW e.g. sharding; a feature that makes data transfers and accessibility faster and more efficient for layer 2 rollups. Caroline Bowler stated, “The Merge is said to be the first of five major improvements to the Ethereum network. Vitalik Buterin is quoted as saying this will move the network from 40% to 55% completed”.

PoS also allows ETH holders to earn crypto rewards through staking. Ethereum staking rewards are earned by setting up an individual node or delegating your ETH to a pool. By participating in staking, you assist in the validation of the Ethereum blockchain, further securing the network. The Ethereum network offers ETH as a reward for doing this.

Setting up your own pool requires 32 ETH, but if that’s not feasible, you can join a staking pool. More information on staking can be found on Ethereum.org.

Will the Merge Impact Ethereum Token Holders?

As a holder of Ethereum, there is nothing you need to do with your funds or wallet ahead of the Merge. There is no upgrade to an “ETH2” token, and any funds held before the Merge will still be accessible after it is complete.

Please always check reputable sources, such as Ethereum.org, for official releases and guidance.