The Ethereum Merge

15.09.2022

Published by Appelink

What is The Ethereum Merge about?

Ethereum is getting an update from the current Proof-of-Work to a Proof-of-Stake consensus mechanism. The Ethereum merge should reduce its energy consumption by 99% and further scale the Ethereum ecosystem. The merge result is Ethereum 2.0, a new version of Ethereum. At the initial stage, a proof-of-work consensus mechanism secured Ethereum, where hardware computing services solved mathematical equations in a competitive process This is necessary to mine the next block of the Ethereum blockchain. With the introduction of the new version, there is no need for mining nodes to compete for block rewards anymore; instead requires node operators to stake 32 Ether (ETH) as collateral to become network validators to earn rewards. There are several reasons why there is now a switch to a Proof-of-Stake consensus mechanism:

  • More decentralisation through reduced hardware requirements for node operators
  • Faster transaction confirmations
  • 99% reduction of the energy consumption of the node validators
  • Possibility for further scaling solutions
  • Enhanced security through client diversity
  • ETH becomes a deflationary asset

The amount of Ethereum issued as block rewards will also be significantly reduced. Currently, about 13.000 Ethers are mined per day. After the upgrade, the number will increase by almost 90%, and this will slow down the inflationary growth of Ether. This merger has been in the works for six years. It is a kind of milestone in cryptocurrency’s history because it has potential material and philosophical implications. The aim is to boost market confidence and optimism after months of market volatility due to inflation and rising interest rates, among other things. Ethereum 2.0 proves that a decentralised and permissionless network can be energy efficient. Such an event as this merge may not happen again in the crypto world.

Effects on the users

Users will not notice this change. As a precautionary measure, deposits and withdrawals from Coinbase will be interrupted for a short time; otherwise, no impact on the networks and currencies is expected. However, the balances of those who have used their ETH will not be unlocked and cannot be traded or transferred immediately after the merger. ETH stakes are expected to be unlocked and accessible once the Ethereum protocol has completed its upgrades. Current estimates are that this upgrade will be completed in early 2023.

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