8 Questions About Ethereum’s “Merge”

From PoW to PoS, Ethereum’s “The Merge” is becoming more and more anticipated.

On April 11, Ethereum completed the network’s first shadow fork, launching a merged testnet transitioning from PoW to PoS.

On April 14, Ethereum core developer Tim Beiko said regarding the Ethereum merger time that the specific merger date has not yet been determined, and the merger date will only be determined when the client team is sure that the software implementation has been thoroughly tested and there are no errors.

In addition, Tim Beiko stated that as of April 2022, all client teams are working on merged implementations, including the launch of new testnets and testing of shadow forks. Among them, shadow forks running against existing testnets and the Ethereum mainnet have revealed client implementation issues, and the team is now fixing these issues and will regularly rerun shadow forks to test the fixes.

In 2013, Vitalik Buterin published the white paper for Ethereum, the “next generation smart contract and decentralized application platform.” Initially launched in 2015 as a Proof of Work (PoW) consensus algorithm, the vision has always been to make Ethereum an energy-efficient Proof of Stake (PoS) network.

In order to fully realize the transition to PoS, the history of Ethereum on the PoW network will be preserved as the PoS consensus layer is merged as a replacement for PoW. This will be done through the so-called "Merge". Once completed, the PoW consensus layer in Ethereum will be removed and the consensus of all future blocks on the Ethereum blockchain will be achieved by the new PoS consensus layer. In this transition, any transactions completed on the Ethereum network will not be lost - "The Merge" will not affect the data layer of the Ethereum network.

Next, let’s use a few questions to explain Ethereum “The Merge”.

1. What is The Merge?

"The Merge" is an upgrade to Ethereum that replaces the current consensus mechanism with a more environmentally friendly, efficient and secure Proof of Stake (PoS) consensus mechanism. When the Merge occurs, the current PoW consensus mechanism will be completely abandoned, and all blocks on Ethereum will be generated through PoS.

2. When will The Merge take place?

The unofficial response is to expect it sometime in the second quarter of 2022.

Currently, there is no clear date for “The Merge”. The Ethereum community is pushing all efforts to focus on switching to Proof of Stake (PoS). The Ethereum PoS chain is currently running and experienced its first hard fork (codenamed Altair) in October 2021.

Ethereum "The Merge" core developer Tim Beiko responded on social media: (Ethereum merger) will not be completed in June, but it may be a few months later. There is no definite date at the moment, but we are definitely in the final stages of Ethereum PoW.

3. After The Merge, can we continue to use the PoW version of Ethereum?

No. There will only be one Ethereum, and the entire network will switch to the PoS consensus mechanism.

If any nodes were to continue mining on the PoW version of Ethereum, they would be on their own minority fork, and the economic value of their block rewards would be far less than their operating costs. Since miners are incentivized to mine for profit, it is expected that all PoW participants would immediately begin using their hardware to mine on other non-Ethereum PoW blockchains.

4. How decentralized is Proof of Stake (PoS) compared to Proof of Work (PoW)?

Besides improved efficiency, one of the other main motivations for moving to Proof of Stake (PoS) is the increased decentralization and censorship resistance that PoS provides.

PoW and PoS do have a lot of similarities. They are both completely permissionless systems that anyone can participate in. They both rely on economic Sybil attacks: the impact on the network, and the rewards that can be obtained, are proportional to the amount of economic resources invested (computer hardware and electricity in PoW, and tokens in PoS). However, there are important differences between the two.

To become a miner in a PoW network, one needs to purchase mining hardware (specialized hardware usually called an "Application Specific Integrated Circuit" or "ASIC"), have access to cheap and reliable energy, and have a reasonable level of technical skills to run and maintain a "mining farm". Small-scale mining is possible, but economies of scale make it difficult to compete with larger, wealthier mining farms. In addition, due to their high power consumption, central authorities can easily detect mining farms and shut them down or force them to participate in attacks.

PoS, especially the form of proof-of-stake used in Ethereum, is friendlier to smaller players. To join as a validator and start staking, one needs to provide 32 ETH (if a user holds less than this, decentralized staking pool technology based on multi-party computation is under development). The only hardware needed to participate in PoS consensus is any reasonably modern consumer hardware (such as a laptop) to run a node. Staking large amounts of ETH requires more hardware to handle more shards, but this is only a serious problem if millions of dollars are staked. Staking can be done from anywhere, and you won't lose a lot of revenue due to an extra few hundred milliseconds of latency.

5. In addition to staking 32 ETH, are there other ways to participate in the Ethereum network?

In short, no.

32 ETH, an amount chosen for good reasons. It is high enough to keep network participants honest, since they can lose ETH through dishonest behavior, but it is also low enough that a sufficient number of validators can exist on the network - allowing it to maintain a high level of security.

While technically, 32 ETH is indeed required to activate and run a validator, services such as RocketPool allow stakers with 17.6 (16 ETH + 10% collateral) or more ETH to match the 16 ETH deposited into the RocketPool smart contract by other stakers (who often also have less than 32 ETH or do not want to run a validator themselves). This makes it possible to run a validator without having to own 32 ETH yourself.

6. Can “The Merge” solve the high gas fees?

No, the “Merge” is limited to upgrading Ethereum’s consensus mechanism. In fact, it will not have any impact on the current user experience of Ethereum today.

Future updates on the Ethereum roadmap, such as sharding, will directly help improve gas fees.

7. What is the Triple Halvening?

The "triple halving" was proposed by blockchain investor Nikhil Shamapant (@SquishChaos) to indicate that once "The Merge" occurs and Ethereum is fully upgraded to the Proof of Stake (PoS) consensus algorithm, the issuance of ETH will drop significantly. The "triple halving" is a "halving" for Bitcoin. Bitcoin's issuance rate is halved every 4 years, while Ethereum's issuance rate will be reduced by about 90% at the time of the "Merge". This is equivalent to 3 Bitcoin "halvings" happening at the same time! Ethereum will immediately experience a reduction in issuance, which will take an additional 12 years to match on the Bitcoin network.

Under the current Proof-of-Work (PoW) model, Ethereum issues approximately 13,500 ETH per day — about 4.3% of the total ETH supply per year.

However, the PoS issuance model is determined by the amount of ETH actively staked on the network. Current forecasts predict that the ETH issuance rate will drop to between 0.3% and 0.4% when “The Merge” occurs.

In comparison, 900 BTC are currently issued every day, or about 1.7% of the total supply each year. The next two "halvings" will reduce Bitcoin's issuance to about 0.8% (in 2024) and 0.4% (in 2028).

As ETH issuance drops to 0.3%-0.4% after “The Merge”, Bitcoin issuance will not approach ETH issuance again until 2028. This means that it will take Bitcoin 12 years to accomplish what Ethereum will do in the next few months.

So, when the triple halving is combined with the EIP-1559 BaseFee burning mechanism, it is expected that ETH issuance will actually become deflationary during periods of high user activity.

8. Are there any risks currently associated with “The Merge”?

There are always risks when making major changes to protocols that protect hundreds of billions of dollars in assets. The “Merge” can be thought of as changing the engines of a plane while it’s still in flight. Thankfully, the Beacon Chain — the current proof-of-stake (PoS) Ethereum chain — has been running without any issues since December 2020.

There are currently 4 clients that support PoS Ethereum nodes. This means that if PoS node operators encounter problems with a given implementation, they will be able to switch to a different client. The current PoS network is the result of many years of research and hard work. Participants can rest assured that the code used will be thoroughly checked, battle-tested, and checked again before the "Merge" occurs.