Ethereum merger is coming next month, don't be misled by these eight statements

"The merger is predicted to happen around September 15, but the exact date depends on the hash rate." On August 12, Ethereum co-founder Vitalik Buterin tweeted a relatively clear date for the network merger. This means that the much-anticipated event in the blockchain world - the Ethereum merger - will arrive in a month.

The Marge is the most important upgrade in the history of the Ethereum blockchain network. In this upgrade, the current Ethereum mainnet (the existing execution layer) will be combined with the Proof of Stake (PoS) consensus layer "Beacon Chain". This marks the end of Ethereum's current Proof of Work (PoW) consensus to eliminate the need for energy-intensive mining and instead use staking ETH to protect network operations.

The Ethereum merger will not only reduce the network's energy consumption by about 99.95%, but also lay the foundation for its subsequent expansion plan upgrades such as sharding.

During the entire pre-heating period, some users still had misunderstandings about the Ethereum merger, such as "the merger will reduce gas fees", "transactions will be significantly faster after the merger", "the merger will cause the Ethereum blockchain to shut down", etc. In response to these erroneous statements, the Ethereum official website has clarified them one by one.

Myth 1: “You need to stake 32 ETH to run a node”

Correct answer: Anyone can freely synchronize their own self-verified copy of Ethereum, that is, run a node, without ETH, before or after the merger. "Staking 32 ETH" is actually a requirement for block-producing nodes.

There are two types of Ethereum nodes: block-producing nodes and non-block-producing nodes.

Block-producing nodes are only a small part of all nodes on Ethereum, including mining nodes under Proof of Work (PoW) and verification nodes under Proof of Stake (PoS). These block-producing nodes need to invest economic resources (such as GPU hashing power required by PoW and ETH staking required by PoS) in exchange for rewards after the block is produced.

Other nodes on the network (i.e., most nodes) do not need to provide any economic resources, except for a consumer-grade computer with 1-2 TB of available storage space and an internet connection. These nodes do not produce blocks, but they still play a key role in protecting the network - listening to new blocks and verifying the validity of new blocks according to the network consensus rules, and supervising the responsibility of all block producers. If the block is valid, these nodes are responsible for broadcasting the valid information to the network. If the block is invalid for any reason, the node software will ignore it and stop broadcasting.

Under either consensus mechanism (PoW or PoS), anyone can run a non-blocking node. If you are able, Ethereum officials strongly recommend that all users run a node, as this is extremely valuable to the decentralization of Ethereum and can bring additional benefits to any individual running a non-blocking node - such as increased security, privacy, and censorship resistance.

Myth 2: “Mergers will reduce gas fees”

Correct answer: Merge is a change in the consensus mechanism, not an expansion of network capacity, and will not reduce Gas fees.

Gas fees are a product of network demand relative to network capacity. The merged Ethereum no longer uses PoW consensus, and the transition to PoS consensus will not significantly change any parameters that directly affect network capacity or throughput.

According to the roadmap centered on Rollup expansion technology, Ethereum advocates focusing on expanding user activities in the Layer2 network while making the Layer1 mainnet a secure decentralized settlement layer. Layer2 optimizes the storage of aggregated data to help aggregate transactions decrease exponentially. Transitioning to PoS consensus is a key prerequisite for achieving this goal.

Myth 3: “Transactions will be significantly faster after the merger”

Correct answer: Although there are some minor changes, the transaction speed of Layer 1 will remain basically unchanged.

The “speed” of a transaction can be measured in several ways, including the time it takes for a transaction to be included in a block and the time it takes for a confirmation to complete. Both of these changes have changed slightly after the merger, but not in a way that users will notice.

In terms of block speed, historically, a new block was generated approximately every 13.3 seconds under the PoW mechanism. On the beacon chain, slots (12-second time slots) appear exactly every 12 seconds, and each slot is an opportunity for a validator to produce a block. Most slots have block output, but not necessarily all (i.e. the validator is offline). The block generation frequency under the PoS mechanism will be about 10% more than PoW. "This is a fairly insignificant change that users are unlikely to notice."

When confirming transactions, PoS consensus introduces the concept of transaction finality that did not exist before. Under PoW consensus, the ability to reverse a block increases exponentially as each block is mined to confirm a transaction, but it never reaches zero completely. Under PoS consensus, confirmed blocks are bundled into the validator's epoch (voting period, a time span of 6.4 minutes, containing 32 block opportunities, or 32 slots). When an epoch ends, the validators vote to decide whether to consider the epoch "reasonable". If the validators agree to prove the rationality of the epoch, it will be confirmed in the next epoch. It is economically infeasible to revoke the final transaction because it requires obtaining and destroying more than 1/3 of the staked ETH.

Under the PoW consensus, the operation of many Dapps requires a large number of blocks to confirm transactions, and the time taken for these confirmations is comparable to the time taken for final confirmation under the PoS consensus. Therefore, confirmation work can provide additional security guarantees but will not significantly speed up transactions.

Myth 4: “I can withdraw my staked ETH once the merger is complete”

Correct answer: This merge upgrade has not yet enabled withdrawals of staked ETH, but Ethereum’s “Shanghai Upgrade” will enable withdrawals.

The staked ETH, the staking rewards to date, and the newly issued ETH after the merger will still be locked on the beacon chain and cannot be withdrawn. The withdrawal function is planned for the "Shanghai Upgrade", which is the next major upgrade after the Ethereum merger. This means that the newly issued ETH, although accumulated on the beacon chain, will remain locked and unable to flow for at least 6-12 months after the merger.

Myth 5: “Before the Shanghai upgrade, validators cannot receive liquid ETH rewards”

Correct answer: Tips and MEV (Miner Extractable Value) will be credited to the mainnet account controlled by the validator and will be available immediately.

It is important to know that the ETH issued by the consensus layer is a reward for validators who contribute to the consensus, and the beacon chain represents the newly issued ETH. The validator has a unique address to save its staked ETH and staked rewards, and this part of ETH will be locked until the "Shanghai Upgrade".

The ETH on the execution layer (current Ethereum mainnet) is calculated separately from the consensus layer. When a user executes a transaction on the Ethereum mainnet, the gas fee must be paid in ETH, including a tip to the validator. This ETH is already in the execution layer and is not newly issued by the beacon chain protocol, so it can be immediately provided to the validator (note that the validator must provide the correct address to the Fee Recipient client software).

Myth 6: “Once withdrawals are enabled, stakers can exit immediately”

Correct answer: For security reasons, the rate at which validators can exit will be limited.

When withdrawals are enabled in the Shanghai Upgrade, all validators will be incentivized to withdraw their staked balances above 32 ETH, as these funds do not add yield and are otherwise locked. APR (determined by the total amount of staked ETH) incentives may cause validators to exit in order to recover their entire balance; validators may also re-stake their rewards to earn more yield.

There is an important caveat here - full validator exits are rate-limited by the protocol, and only 6 validators can exit per epoch (that's a 6.4 minute exit time, so 1,350 validators can exit per day, or, with over 10 million ETH staked, only about 43,200 ETH can exit per day).

Why rate limit? First, the rate limit is adjusted based on the total amount of ETH staked to prevent large outflows. In addition, it prevents potential attackers from using their stake to perform a "slashing attack" - withdrawing their entire staked balance at the same time as the protocol executes a slashing.

It can be seen that Ethereum deliberately sets the APR to a dynamic adjustment mode, which allows stakeholders to decide how much they are willing to pay to protect the network based on the market. After withdrawals are enabled, if the rate is too low, validators will exit at the rate limited by the protocol, which will cause the APR of all remaining validators to increase. At this time, new stakers will be attracted, or the exiting stakers will return.

Myth 7: “Staking APR is expected to triple after the merger”

Correct answer: According to the latest estimates, after the Ethereum merger, the staking APR will increase by closer to 50%, not 200%.

The staker’s APR will indeed increase after the merger, but to understand how much it will increase, you need to understand where the APR increase comes from.

The growth does not come from an increase in the issuance of ETH. On the contrary, after the Ethereum merger, the issuance of ETH will be reduced by about 90%. The growth actually comes from the redistribution of network transaction fees, which will begin to flow to validators instead of miners in the past.

Network fees are a separate source of income when validators produce blocks. As you can imagine, the amount of fees a validator receives is proportional to the activity of the network at the time they produce a block. The more fees paid by users active on the network, the more fees a validator receives.

Based on recent Ethereum blockchain activity, approximately 10% of all gas fees paid are currently paid to miners in the form of tips, with the rest being burned. Projections are much higher than this percentage and are calculated when network usage is at an all-time high. Extrapolating the 10% figure to an average of recent network activity, the estimated staking APR would increase to approximately 7%, which is approximately 50% higher than the base issuance APR (as of June 2022).

Myth 8: “The merge will cause Ethereum network downtime”

Correct answer: The merge upgrade is designed to transition to Proof-of-Stake (PoS) consensus with zero downtime.

Ethereum developers have put in a lot of work to ensure that the transition to PoS consensus does not disrupt the network or harm users.

Like changing the engines of a rocket ship mid-flight, the Ethereum merge is designed to be executed without pausing any operations during the switch. The merge will be triggered by the terminal total difficulty (TTD), which is a cumulative measure of the total hash power building the chain. When the time is right and this criterion is met, the block will transition from a block built using PoW consensus to a block built using PoS consensus.

On August 12, Ethereum co-founder Vitalik Buterin tweeted that the network's terminal total difficulty has been set to 5875000000000000000000000. This means that the Ethereum PoW network now has a roughly fixed number of hashes available for miners to mine. After this terminal total difficulty triggers the merger, miners under the PoW system will exit the Ethereum stage, and validators under the PoS system will take over the network's block production work.