The Ethereum Merge: Simply Explained!

The Ethereum Merge: Simply Explained!

Ethereum just got a new engine upgrade! Know about the motivation behind it and how one of the largest open-source software endeavors was pulled offโœ….

SIDHARTH KUMTHEKAR's photo
SIDHARTH KUMTHEKAR
ยทSep 15, 2022ยท

7 min read

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Table of contents

  • What is the merge?
  • How did the merge happen?
  • The Implications and Motivation behind The Merge
  • The Merge is done, what should I do now?
  • Is this the End ?

Ethereum , the 2nd largest crypto economy in the world after Bitcoin is making up the headlines in the cryptosphere for quite some time now. And finally, the most anticipated and elegantly orchestrated technical symphony in the history of Blockchain has taken place -The Ethereum Merge is finally successful !!๐Ÿผ

The Merge marks the end of an era of power-hungry miners and commences the beginning of a greener Ethereum. Its age-old Proof of Work consensus mechanism is finally replaced with a much more efficient and secure Proof of Stake (PoS)mechanism.

So what exactly is the merge? How did it happen? What's the motivation behind it? What do I need to do, now that the merge is completed? This beginner- friendly blog answers all your questions in the most techno-friendly way possible!

Before shooting straight to the stars, Let's understand what exactly is the PoW and PoS consensus mechanism

  • Proof Of Work: A consensus mechanism, where miners purchase computational hardware / graphic cards to mine ETH, where the computers compete with each other to solve a complex math problem. The first to solve it correctly will get the authority to validate a transaction. And earn a portion of incentives in ETH.

  • Proof Of Stake: A consensus mechanism, where there are no miners! There are stakers who stake ETH in the Ethereum network, in order to validate a transaction, consider it as a bribe that you are giving to the network. By saying hey here's my ETH, which I'm staking into your network, in return for my loyalty I get a chance to validate transactions.

    These staked ETH tokens act like lottery tickets: The more ETH validator stakes, the more likely one of its tickets will be drawn, granting it the ability to write a โ€œblockโ€ of transactions to Ethereum's digital ledger. (source:coindesk.com)

What is the merge?

The Merge referred to the event where Ethereum's current execution layer joined with the parallelly running Proof of Stake chain, called the Beacon Chain. It retired the Ethereum's long-run consensus mechanism-Proof of Work since genesis. And marked a complete transition to the Proof of Stake, as well as positioned Ethereum for future scaling upgrades. The miners are now replaced by stakers or validators, who will stake ETH in return to validate blocks as new transactions come in and help secure the network. What made this event even more challenging is, that the merge was set to happen with 0 downtime. i.e the Merge would take place without halting the network. And guess what It did it-No hiccups!

image.png

How did the merge happen?

There isn't any ON/OFF switch which can just flip the Ethereum consensus mechanism and make the merge happen. Instead of transitioning Ethereum to PoS in a huge potentially dangerous change. ETH researchers and developers decided to split the process into two steps.

Step 1- Launching the Beacon Chain:

beacon-chain-beacon-chain-vs-eth-1.0.jpg

The Beacon chain - a parallelly running proof of stake blockchain was shipped on December 01, 2020. Since then the chain underwent continuous testing without having any direct impact on the existing POW network. The reason to launch the Beacon chain so early was to give enough time for stakers to stake sufficient ETH to secure the network at the time of merge. The moment before the merge, there were about 13 million ETH actively staked into the Beacon chain.

The transaction history of all the transactions taking place in the Ethereum network before December 01, 2020 were copied into the Beacon chain and since then, all the transactions taking place in the mainnet are parallelly copied into the Beacon chain.

Step 2-Swapping the engines :

image.png

The previously existing execution layer of the EVM(Ethereum Virtual Machine) state merged with its new PoS consensus layer. This marked the official switch of using the Beacon chain as the engine of block production henceforth.

Consider this analogy :

Imagine Ethereum as a car, driving on a highway, the merge aims at transitioning the car's engine from gas to electric, what's challenging is that the transition must happen without stopping the car! To achieve this, an identical car powered by an electric engine, tested for more than 1.5 years must run parallelly with the existing gas-powered vehicle. While maintaining an identical speed. Finally, at one such critical point, the cars will swap their engines while continuing their ride. And now that same car with the newly acquired electric engine will lead its journey forward.

Let us understand how the merge was triggered:

The merge triggered in two upgrades : The first was named -Bellatrix, which took place a week before at an epoch height of 144896 on the Beacon chain, and the second was named Paris which was about to take place upon hitting a Total Terminal Difficulty threshold of 58750000000000000000000 on the execution layer. The upgrade took place on Thu Sep 15 06:42:42 2022 UTC.

image.png

Once the total terminal difficulty was hit and exceeded the next block to be appended to the network was produced by a Beacon chain validator. And the merge transition was said to be complete once the Beacon chain finalized this block. This is known as the Finality condition of the merge.

Before directly merging with the main net, the transition underwent multiple intensive rounds of testing with shadow forks and testnets. About a month ago Ethereum successfully merged with three of its test nets :

  • Ropsten on June 8th
  • Sepolia on July 6th
  • Goerli the most recent and the final test net to be merged on August 11th.

The Implications and Motivation behind The Merge

1.Makes Ethereum energy efficient:

For a long time, Ethereum was scrutinized for its massive carbon footprints and electricity consumption. Pre-merge, Ethereum on PoW consumed 113.2TWh annually ~ energy equivalent to Finland and imprinted a carbon footprint equivalent to that of Singapore's(53 MT/year). The transition of Ethereum to Proof of Stake should now reduce its energy requirements by a whopping 99.95% (making Eth 99% less energy intensive).

This will make Ethereum ESG compliant which can be good for Ethereum in eyes of regulatory institutions and policymakers. Further, it silences the critiques that blockchain minimalists have about the harmful impact of Ethereum, DeFi's, and NFT's on our planet. And encourage the gamers, and NFT artists who are concerned about the enviromental impact of crypto, to build more projects on top of the Ethereum network.

2. Decrease in ETH issuance:

Under the old Proof of Work System. The Ethereum blockchain issued about 13,000 ETH per day to pay the miners. Now, staking on the other hand simply requires the user(node participator) to lock up a minimum of 32 ETH.Post merge, Ethereum will only need to issue 1600 ETH per day. Thus, making ETH a deflationary asset in the long run.This decrease in ETH issuance is called Triple halving: as the issuance drop is equivalent to three Bitcoin issuance halvings.

3. Ethereum becoming a Deflationary Asset:

At present, ETH is inflating at an APR of +4.13% per year (i.e 5.5 million ETH newly circulated every year). After the merge's success, the amount of ETH entering the circulation will be reduced to 1600 per day, which drops the annual inflation rate to about 0.3 or 0.4% over a long period of time. On average around 1600 ETH is burnt every day. Which can bring net inflation to 0 post-merge over a long period of time. Checkout the ETH supply growth and burn stats here

4. ETH prepares to get faster !

The merge laid the groundwork for making the Ethereum base chain more scalable and faster, especially after witnessing the boom of Layer -2 scaling solutions. This gives rise to Ethereum's next ambitious goal which it is preparing to achieve: Danksharding - a multiphase sharding upgrade to improve Ethereum's scalability and user capacity. In simple terms sharding is a process of dividing the Ethereum network into smaller chunks ("shards") to improve efficiency and application scalability.

๐Ÿ‘‰To know more about sharding

5. Xmas for gamers!

At last, the merge marked the end of a long ran scarcity and continuous price hikes of graphic cards. Which once, were extensively used and purchased by miners in bulks to maintain and speed up their mining hardware.

The Merge is done, what should I do now?

If you're a user or holder do nothing๐Ÿ˜Ž No need to do anything with your wallets or funds. Just relax and join the Merge watch party ๐ŸŽ‰๐ŸŽ‰๐Ÿฑโ€๐Ÿ๐Ÿ‘‰(youtube.com/watch?v=Nx-jYgI0QVI)

If you're a Node Operator or Dapp Developer have a look here!๐Ÿ‘‹

Is this the End ?

"This is the first step in Ethereum's big journey towards being a very mature system, but there are still steps left to go" -Vitalik Buterin(co-creator -Ethereum)

Want to know more? :

Ethereum Vision

Coindesk-Monitoring the Merge

Ethereum.org-merge

[coindesk.com/tech/2022/09/15/the-ethereum-m..

Image Credits :

  1. Cover Image:Cryptoslate.com

  2. Beacon chain poster:phemex.com

  3. Beacon chain image :Ethereum.org

  4. Merge Timeline:Ethereum.org


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