The Merge is Coming!

September 9th, 2022

Blockchains require some mechanism in order to decide which transactions are included in a block and the order of these blocks, ultimately generating the immutable timeline of data that we all know and love. Usually, this is known as the consensus mechanism. In most blockchains, the implementation is Proof of Work (“PoW”), which is a race between workers (miners) that consume an insane amount of computational power in order to be the first to find a suitable block in a process called mining. On Ethereum, there is another important layer called the Execution Layer, which takes a transaction and makes sure that the “database” is updated. For example, if you send an NFT it updates the “owner” and saves it.

Proof of Stake (“PoS”) takes a different approach to consensus. Instead of a race, each worker (validator) deposits an amount of money (32 ETH) as a stake and takes turns to propose a block or vote on the validity of the proposed block. This process is known as validation. In case the validator behaves poorly or is malicious, it gets penalized by removing its stake until it’s kicked from the network or starts behaving as expected.

Since the inception of Ethereum, the community has encouraged the discussion about migrating the consensus mechanism of Ethereum from PoW to PoS. The issue was that core developers and researchers overestimated how challenging the task would be.

While setting PoS as the consensus mechanism for a new blockchain is fairly easy, doing so to an already running blockchain is often compared to changing the motor of a plane while flying, hence the reason why it has taken so much time.

What’s the Merge?

In 2020 Ethereum launched the Beacon chain - the Proof of Stake chain that literally did nothing more than test the consensus mechanism for two years - all the while keeping the PoW chain running at the same time.

If we are going to oversimplify, what the merge does is that it turns off the PoW mechanism on the Execution Layer and enables the PoS mechanism, pretty much merging both chains.

How Secure Is It?

The merge has been tested a lot. Shadow forks (copies of Ethereum Mainnet), testnet merges, and each individual consensus client has done thousands of individual tests. Bounty programs for finding bugs exist, and clients grow more robust every time an issue happens.

Some community members have expressed concerns over what will happen to NFTs, DeFi, and tools in the scenario that a fork happens. A fork can materialize if a subset of actors doesn’t turn off PoW by negligence or by choice. There is also an economic incentive for miners to not turn off PoW. That would mean that a new chain would exist, and everything that you have on one chain at the time of the merge theoretically would exist on both chains. But, there is only one true chain ( upcoming PoS) that most developers and projects will recognize, and most projects have voiced that they won’t support the soon-to-be disregarded PoW chain, meaning that most NFT projects and DeFi projects will break on the PoW chain.

What Does it Change?

A common misconception is that the merge will reduce gas fees - it won’t. The principal change on the merge is the deprecation of the PoW mechanism, which brings other benefits to the table.

First, as miners spend insane computation power, they are required to sell most of their generated tokens (BTC, ETH, etc.) in order to pay for energy costs. Removing this cost not only will reduce by 99.95% the carbon footprint, but it also means that you can reduce the emission of tokens. The current annual emission is 4.3% of the total supply. The merge will reduce this to 0.4%. If you combine this with EIP-1559 (the burn), during periods of high usage, Ethereum will become deflationary, making ETH ultra sound money 🦇🔊.

Security is also increased with the merge, as with PoW an attacker requires 51% of hash power to gain control of the network. With PoS, misbehaving nodes will get their stake wiped out, meaning that continuously attacking the network will be exponentially more costly for an attacker than PoW.

One final perk worth mentioning is that even if the merge won’t improve scalability, it does pave the way for future updates that will indeed expand Ethereum scalability on L2, such as EIP-4488 (dank sharding) and EIP-4844 (Proto-dank sharding), amazingly named upgrades that are outside of the scope of this post, but it is good to know that they exist.

What’s Next?

This isn’t even the final form of Ethereum, as after The Merge more updates are on the roadmap that will increase the scalability and security of Ethereum.

For full details, refer to the Ethereum roadmap.

What’s the Merge?

How Secure Is It?

What Does it Change?

What’s Next?

Further Reading