Read these 10 questions and even novices can understand Ethereum mergers and forks

The much-anticipated Ethereum merger has finally entered the final countdown.

As of 15:00 on August 25, the OKEx "Ethereum Merger Countdown" page showed that Ethereum is expected to complete the merger around 5:30 on the 21st day. Ethereum officials also issued a statement saying that the final date of the merger is expected to be around September 16.

In the article "There are too many professional interpretations of Ethereum mergers, but this one is the most suitable for novice users", OUYI Newbie Academy also made an easy-to-understand but detailed and comprehensive introduction to this hot event. Interested readers can click to read it directly.

Simply put, the merger is the process of Ethereum's conversion from the POW mechanism to the POS mechanism. The former uses computing power mining to produce blocks, which is beneficial to miners; while the latter uses staking assets, which is beneficial to users and developers. In other words, the output of Ethereum is no longer through computing power mining. Ordinary users can complete transaction confirmation and receive rewards by depositing ETH assets on the chain, which means that miners will lose their jobs and the threshold for user participation will be lowered. In response to this, the miner group resisted in the form of a hard fork, that is, to create another Ethereum chain that continues to use the POW mechanism to compete with the POS version.

As the merger approaches, the Ouyi Newbie Academy has sorted out 10 must-read questions for users, and provided comprehensive, clear and easy-to-understand answers to help novice users grasp the relevant basis of this major event, or use it to further enhance their understanding of Web3.

1. What is the relationship between the merger and Ethereum 2.0?

Ethereum 2.0 is the ultimate goal of Ethereum. The merger is only the first stage of the realization of Ethereum 2.0. The two cannot be equated. After the merger, four stages of optimization and upgrading are required to finally realize Ethereum 2.0. The estimated time of realization is around 2025. By then, Ethereum's TPS (that is, the number of transactions that can be confirmed per second) can theoretically reach 100,000, while now it is less than 50.

2. After the merger, will the gas fee and TPS issues be significantly improved?

After the merger, the problems of high gas fees and low TPS will be alleviated to a certain extent, but the current predicament will not be completely reversed.

Because the sharding technology upgrade that completely solves the underlying performance problem needs to be completed in four stages after the merger. The merger stage is mainly to achieve a smooth switch of the consensus mechanism, that is, to safely and stably switch from POW to POS. But it is also exciting that after switching to POS, Ethereum's energy consumption will be directly reduced by more than 99%, because physical mining machines are no longer needed, and the widely criticized pollution problem will be solved once and for all.

3. Why can the merger bring deflation to ETH?

In the POW mechanism, Ethereum needs to pay a large amount of ETH as a handling fee reward to maintain the operation of the network. This part of ETH is actually an additional asset. After entering the market, it will form an inflation model, that is, more and more Ethereum is in circulation. Therefore, this model that affects the scarcity of assets is bound to be unfavorable to value preservation and appreciation.

After the merger and conversion to the POS mechanism, Ethereum no longer needs to pay additional fees to miners, and ETH theoretically does not need to be issued. In addition, as early as 2020, Ethereum introduced the EIP-1559 protocol, which is a targeted destruction of miners' fees. Therefore, the current stock of Ethereum will become less and less, and theoretically enter a deflationary model, which is conducive to the firmness of asset prices in the long run.

4. Why does it take 32 ETH to stake to run a verification node?

After the merger, the verification nodes replaced the miners and were responsible for confirming transactions. To become a verification node, there must be a certain threshold. If the number of ETH staked is too low, it will cause a vicious competition between large and small miners similar to the POW mechanism, slowing down the transaction confirmation speed, causing Ethereum to be congested and expensive. But why must it be 32 ETH? Because 32 is 2 to the fifth power, and the message transmission under the POS mechanism is exponential. According to the design of the POS mechanism, transaction verification involves the mutual recognition of information between the submitter and the verifier. In other words, the information submitter and the verifier need to complete the confirmation in the shortest time according to the number of staked assets. After system calculation, 32 ETH is the optimal solution. Of course, with the optimization of later performance, this number may be adjusted dynamically.

5. Will Ethereum stakers sell their withdrawn ETH after the merger?

In fact, Ethereum has been preparing for the merger and pre-opened a small-scale staking mode in November 2020. As of August 1, on-chain data showed that the total amount of Ethereum staked was about 13.132 million ETH. As the merger approaches, a considerable number of users holding ETH are worried that these pledgers will sell the pledged ETH, which will affect the asset price. According to the mechanism design of Ethereum after the transition to POS, pledgers can only withdraw pledged assets within 6 to 12 months after the merger is completed.

Therefore, there will not be a large amount of pledged ETH sold in the early stage of the merger. Even after the withdrawal date expires, Ethereum officials will impose restrictions on this, and you will need to queue up to withdraw assets. To put it in a more vivid way, the pledged asset library is like a pool, and the speed of releasing water will be very slow, like a trickle, rather than opening the gate to release a flood.

6. Why has the Ethereum merger been repeatedly postponed? Can this Ethereum merger be completed as scheduled?

The essence of the Ethereum merger is to make a fundamental adjustment and change to the interest distribution mechanism of all parties in the ecosystem. Completing this task itself is challenging. It should be noted that Ethereum users, developers and miners add up to tens of millions, even all over the world. In addition, Ethereum has developed rapidly in recent years, and the assets and applications on the chain have exploded, which directly increases the difficulty of the merger, because the technical security and interest coordination issues involved are more complicated, so the merger has been postponed from several years ago to now.

Before the official merger of the mainnet, Ethereum has successfully completed three testnet mergers, which are three rehearsals and exercises before the merger. According to the official statement, this merger is expected to be completed around September 16. In this regard, the Ouyi Novice Academy will continue to pay attention, and we will also follow up with popular science interpretations of the latest developments.

7. After the merger, will Ethereum suffer a network attack?

Under the POW mechanism, the security threat of Ethereum mainly comes from the network paralysis caused by the miners who control more than 51% of the computing power, that is, more than half of the transaction confirmation rights, stopping to produce blocks. After switching to POS, this problem will no longer exist, but new security issues will also follow. Because the pledged assets correspond to the voting rights for key community matters, this gives large holders who pledge huge amounts of assets certain rights to do evil. They can vote for proposals that are not conducive to the community, or veto proposals that are beneficial to the ecology, in order to achieve their own goals.

In other words, the more assets pledged, the greater the possibility of evil.

8. Faced with the hard fork between ETHs and ETHw, how will the leading projects choose?

We also mentioned in the article "There are too many professional interpretations of Ethereum mergers, but this one is the most suitable for novice users" that after the POW mechanism is abandoned, all miners will be unemployed and their jobs will be broken, so hard forks are the means for miners to fight back against mergers. After the hard fork, ETH will be divided into two chains: ETHs (Pos version of Ethereum) and ETHw (Pow version of Ethereum), and the project parties and users on the chain must choose sides. From common sense, choosing the ETHs chain is the common wish of the majority of developers and users, because it is more in line with their interests, and this can be seen from the current statements of all parties. At present, the majority of project parties have expressed their support for ETHs, mainly including:

1. The two most mainstream stablecoin issuers: Tether (USDT) and Circle (USDC);

2. Top DeFi projects: Chainlink oracle, Aave lending protocol, DeBank decentralized wallet, and Curve stablecoin trading protocol;

3. NFT projects: BAYC, Boring Ape, issuer Yuga Labs, etc.

However, most of the project owners who publicly support ETHw are not at the top, and their voice and potential are smaller. Some KOLs also stand on the side of miners more out of their own interests, and there are few responses.

9. If the hard fork fails, what will happen to the previous POW miners?

The current public opinion environment shows that the hard fork has not received widespread support. It is more of a self-help action initiated by miners. Therefore, after the hard fork fails, miners can only move elsewhere. The main places to go are: turning to other public chains that support the POW mechanism, such as ETC; carrying out computing power mining of some unpopular assets and projects, such as Grin; carrying out other network computing power services besides mining.

It should be noted that the influx of large-scale Ethereum miners into other public chains will bring huge shocks to the output of assets of other projects, which will in turn affect asset prices. Users who intend to invest need to make prudent judgments, control risks, and choose the right time to buy, such as ETC.

10. How can ordinary users benefit from this Ethereum merger?

For the majority of users, the biggest bonus of the Ethereum merger is that it opens up a model of earning money by depositing money. In other words, as long as you deposit Ethereum, you can get rewards.

At present, the ideal way to participate is to provide the ETH 2.0 locked mining node operator service provided by OKX. Users only need 0.1 ETH to participate in the project, and 100% of the on-chain income will be distributed to users. The mining income is dynamically adjusted according to the amount of locked positions on the chain, and the annualized rate of return is expected to be between 4% and 20%.

The platform issues mining certificates BETH at a 1:1 ratio, takes a snapshot of user holdings at 00:00 (HKT) every day, shares the on-chain revenue in proportion to the user's BETH holdings, and distributes mining revenue at 11:30 (HKT) the next day. When the ETH2.0 mainnet is launched, it can be exchanged back to ETH at a 1:1 ratio based on the amount of BETH held.

Ouyi Tips: Users need to pay attention to the market risks derived from mergers

According to the official announcement released by OUYI, OUYI will support the Ethereum merger plan and will not suspend any ETH transactions before and after this process. In addition, if forked chains and forked coins are generated during this process, the airdrop and withdrawal of forked coins will be decided after evaluation and confirmation. It should be noted that before and after this major event, it is not ruled out that some organizations will issue so-called "forked coins" by taking advantage of the hot spots, and users need to be cautious. All forked tokens traded on OUYI must go through the official review process, and unreviewed tokens will not be open for trading.

The OUYI Newbie Academy finally reminds that the market prices of Ethereum and related assets may fluctuate greatly as the merger approaches, and users need to manage their positions and take risk warnings in advance.