Ethereum completed the upgrade of The Merge on September 15, 2022, which is one of the hottest events of 2022. However, there is currently a lot of misinformation on the market surrounding this event. such as: there are new tokens running in parallel with ETH, gas fees on Ethereum decreased deeply after The Merge,...
Table of contents
- Overview of Ethereum and The Merge
- 9 things to know about Ethereum and The Merge update
1. Overview of Ethereum and The Merge
What is Ethereum?
So far, Ethereum is a decentralized network that operates on the Proof of Work (PoW) consensus model. Since 2018, the developers of Ethereum have come up with a common scaling roadmap for the entire ecosystem, commonly referred to as Ethereum 2.0.
Specifically, this roadmap will focus on transforming the way Ethereum works from PoW to PoS incorporating data sharding. Besides, it also aims to process up to 100 thousand TPS but still ensure the inherent security and decentralization of the network.
Quick understanding of The Merge
The Merge is an event to upgrade the Ethereum network, changing the Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS). This is a very important event, greatly affecting miners, users, supporting platforms and dApps using the Ethereum blockchain. In particular, this could be the "end" for ETH miners as the network no longer works on their mining.
With Ethereum upgrading to the PoS version, ETH holders can stake in validators to participate in the validation of new blocks and receive a reward of ETH.
On September 15, 2022, Ethereum completed the update of The Merge!!
2. 9 things to know about Ethereum and The Merge update
Remitano summarizes 9 things to know about Ethereum and The Merge event. These 9 include 5 common myths about Ethereum and The Merge event and 4 impacts of The Merge on Ethereum and the entire ecosystem.
5 common myths about Ethereum and the event The Merge
Here are 5 common myths about Ethereum and The Merge event.
It can be said that The Merge will be the most viable scalability solution for Ethereum to date, because it meets almost all the criteria of a blockchain: increasing throughput but still ensuring the network is secure and highly decentralized.
Based on the general development vision of Ethereum, the two terms Ethereum 1.0 & Ethereum 2.0 are no longer relevant. Not only that, this calling also confuses new users. They will think that Ethereum 1.0 comes first, Ethereum 2.0 comes later, or when Ethereum 2.0 starts working there will be no more Ethereum 1.0.
As of late 2021, Ethereum developers have stopped using the above two terms and replaced the terms below to refer to the core protocol layer (PoS & Data sharding) scaling plan:
- Ethereum 1.0 renamed to Execution layer.
- Ethereum 2.0 renamed to Consensus layer.
- Execution layer + Consensus layer = Ethereum.
After The Merge, a new ETH coin will appear
The appearance of a new ETH token after The Merge is completely incorrect. Because Ethereum states do not change, there is no “new” ETH coin released by the Ethereum team itself, and users who own ETH do not need to do anything.
This may be the most common misconception among investors new to the market or those who are not following Ethereum's consensus transition roadmap.
Transaction fees on Ethereum will decrease when The Merge is complete
Gas fees are too "expensive" is one of the controversial topics when it comes to Ethereum. So when The Merge update appeared, Ethereum users and the entire ecosystem were expecting a change in this fee.
However, after The Merge, transaction fees on Ethereum will not decrease and the transaction speed will not be faster. Fees and transaction speed on Ethereum will be improved once the sharding solution called The Surge is completed. This is another important update step, conducted in parallel with The Merge.
Ethereum will implement several update steps after The Merge such as: The Verge, The Purge and The Splurge, aiming to improve transaction speed, transaction fees and bring the Ethereum ecosystem closer to investors. more public.
After The Merge, to run a node on Ethereum requires a minimum of 32 ETH
After upgrading to PoS, Ethereum will allow you to use ETH to stake directly on the Ethereum network. Currently, it is possible to stake ETH on the Beacon Chain network with 4.7% APR. The requirement to become a validator on Beacon is to deposit 32 ETH.
Note:
- If you send 32 ETH to become a validator on the Beacon network, this ETH cannot be recovered.
- If you have less than 32 ETH, you can participate in staking on the Beacon Chain network.
As such, you will need 32 ETH to activate the validator but will staking less than 32 ETH. There are 4 options for you to consider, each with different target audience, rewards, risks, and security. Do your research and come up with a suitable staking method!
The staked ETH will be unlocked after The Merge
Currently, the amount of ETH staked on the Beacon chain is close to 12M ETH, at $1,600 for an ETH, this figure is worth nearly $27B.
Before The Merge event, ETH staking was a one-way staking. Investors cannot withdraw their ETH and rewards. Many believe that, after The Merge takes place, 12M ETH and staking rewards will be unlocked and create great selling pressure on ETH.
The above thinking is completely incorrect. After The Merge takes place, the Withdraw ETH feature has been staked and the reward will be activated about 6-12 months later. In addition, when the Withdraw feature is activated, only 30,000 ETH can be withdrawn per day.
4 Impact of The Merge on Ethereum
Power consumption is reduced by more than 99.95%
Bitcoin and Ethereum are quite controversial when using the PoW consensus mechanism which consumes a lot of energy. Not only that, the source of energy for the excavators comes from fossil fuels, polluting the environment, significantly affecting the global climate. Therefore, when changing the PoW to PoS mechanism, Ethereum has almost completely solved this "throbbing" problem.
Because it uses less energy, the reward for validators on PoS will also be lower than the reward for miners on PoW, thereby helping to create deflationary pressure on ETH when combined with the EIP-1559 coin burning mechanism. According to Ultrasound.money, within half an hour after The Merge took place, the supply of Ethereum decreased by more than 100 ETH, showing a clear deflationary effect.
According to CryptoQuant, right after The Merge took place, both the hashrate and the mining difficulty on the Ethereum network fell to zero, marking the end of the Proof-of-Work era that lasted for the past 7 years.
Create Ethereum's "rare" smoothness ever
This upgrade of Ethereum can be said to be the turning point of the blockchain with smart contract leading in the crypto market. Ethereum's data will remain the same when using PoS, which means that the user experience is guaranteed while the performance and transaction throughput are expanded.
Establish stability for the entire ecosystem
Ethereum switching from PoW to using PoS will increase the throughput of the Ethereum network. With these capacity improvements, projects built on Ethereum will be more favorable than before as costs and speeds are significantly improved.
This upgrade will partly reduce the dependence on Layer 2 on Ethereum as the risk of hacking/exploite across bridges from Ethereum to L2s is increasing.
Aim for 100,000 TPS after Data Sharding
As always, any upgrade will resolve or improve the issues of older versions. As such, the Ethereum team has stated that the upgrade will significantly improve Ethereum's TPS from 30 TPS to 100,000 TPS using PoS and Data Sharding. Data Sharding will be the next step of Ethereum after The Merge.
