Ethereum, the blockchain behind the second-biggest cryptocurrency in the world, will soon be going through its most significant upgrade since the blockchain’s creation in 2014.
The Merge is the combination of the current Ethereum Mainnet with the beacon chain. This will mark the end of proof-of-work for Ethereum, and the full transition to proof-of-stake.
The Merge is a major part of “Ether 2.0,” a series of upgrades that reshape the blockchain’s foundations. It is a technically complex upgrade, and with the growth of Ethereum, there is increasingly large amount of money at risk. The Merge has been delayed multiple times. Extensive testing and bug bounties were undertaken to ensure a safe transition to proof-of-stake.
The Beacon Chain
Before we discuss further about the Merge, we must discuss a little about the Beacon Chain.
On 01 December 2020, Ethereum developers created a new network called the beacon chain. The beacon chain is essentially the new Ethereum, a ledger of accounts that conducts and coordinates the network of stakers, commonly known as a “proof-of-stake” blockchain.
For the past 1 year and 8 months the beacon chain operates as a “testnet” blockchain that is used only by developers. It is a channel of stress testing the new proof-of-stake Ethereum in preparation for the merge with the mainnet Ethereum. Validators have been adding blocks that contain no data and no transactions to the blockchain.
During this period, the beacon chain operates separately from Ethereum Mainnet. All the Ethereum Mainnet’s accounts, balances, smart contracts, and blockchain state, continue to operate like what it has been since genesis, secured by proof-of-work. The beacon chain runs in parallel using proof-of-stake, reaching consensus on its own state by agreeing on active validators and their account balances.
After the Merge
The Merge is the coming together of the existing execution layer of Ethereum (the Mainnet that everybody is using today) with the beacon chain. The data held on Ethereum’s mainnet will transferred to the beacon chain, which will then become the prime blockchain on Ethereum’s network. The beacon chain will become the consensus engine for all network data, including execution layer transactions and account balances.
The history of Ethereum will not be lost, as the Ethereum Mainnet merges with the beacon chain, it will also merge the entire transactional history of Ethereum. Existing Ethereum holders and users do not need to do anything.
When the Merge is complete, proof-of-work will be replaced permanently by proof-of-stake. Mining will no longer be the means of producing valid blocks. Proof-of-stake validators takes over the miners, becoming the responsible party for processing the validity of all transactions and proposing blocks.
Effects of the Merge
The Merge eliminates the need for energy-intensive mining, transitioning to securing the network using staked Ethereum, thereby reducing Ethereum’s energy consumption by about 99.95%. The Merge is an important first step for future scaling upgrades including sharding.
The Merge is a major milestone in realizing the Ethereum vision of scalability, security, and sustainability.
Some people also believe that after the Merge, there will be increasing interest in Ethereum coming from corporates, thereby causing a price increase in Ethereum. We are not able to do any price prediction on this matter, but we do agree that the new proof-of-stake mechanism is a positive upgrade to Ethereum, from an angle of sustainability.
