Everything you need to know about the Merge, PoS and next steps.

TLDR; Ethereum successfully merged. A technical feat that allows the network to operate in Proof-of-Stake and thus reduce its electricity consumption by 99.95% and its issuance of ETH by 90%, while making the network more secure and decentralized. We come back to what the Merge is, how it works, its benefits and the next steps of the Ethereum roadmap.

• What is the “Merge”?

• How did the Merge go?

• What is Proof Of Stake (PoS)?

• What advantages of PoS vs PoW?

• What are the next big steps for Ethereum?

• FAQs

  • As a user, how does this impact me? What should I do?

  • How to become a validator?

  • Does the Merge improve the scalability of Ethereum?

  • EthPoS vs. EthPoW

• Resources

Translated from the post I wrote in French for Ethereum-france: https://www.ethereum-france.com/ethereum-a-fusionne-🐼/

What is the “Merge”?

The Merge corresponds to the Merge of the Ethereum chains which took place on September 15, 2022.

The Ethereum blockchain had a single chain at its inception that operated using a consensus mechanism associated with Proof-of-Work (PoW).In December 2020, in view of the transition to Proof-of-Stake (PoS or Proof of Stake) anticipated since its creation, another chain was launched: the “Beacon Chain” also called the “Consensus Layer”.

From the launch of the Beacon Chain to the Merge, two chains ran in parallel:

• The execution layer, where transactions were executed and the historical state of Ethereum was stored. It corresponds to the “⛏ Proof-of-work” part on the diagram above, including “Ethereum State: transactions, apps, contracts, balances”); it was the Ethereum Mainnet.

• The consensus layer or the “🚀 Beacon chain” was the chain initiated by users who deposited their ETH (on Mainnet) to become a validator. Until the merge, the Beacon chain was only listening to Mainnet and validating the state of their own chain.

The Merge marks the merger of these two chains and the change in Ethereum's consensus mechanism with the end of PoW and the transition to PoS. The Merge comes with improvements such as reducing power consumption by 99.95% and sets the stage for future updates, such as sharding for scalability, which will become easier to implement.

How did the Merge go?

The TTD (Terminal Total Difficulty, which represents the cumulated hashrate delivered by miners on the Ethereum PoW chain), determined by Core Devs on August 18, 2022, allowed to estimate the Merge timeline: expected between September 10-20, 2022.

We followed the TTD prediction via https://bordel.wtf (referring to the Czech hacker community of the Paralelni Polis)

The TTD was finally reached at 8:42:59 AM on September 15,2022 at block #15537394.

We followed the “Ethereum Mainnet Merge Viewing Party” organized by the Ethereum Foundation, Bankless, EthStaker, Ethereum Cat Herders and The Daily Gwei. We had guests like Superphiz.eth, Pooja Rajan, Tim Beiko, Anthony Sassano, Justin Drake and Vitalik Buterin who answered recurring questions: why the Merge, how does Merge work, how to improve client diversity, how to maintain decentralization etc.

As usual, Jonathan Mann, sang us a song written for the occasion: 'Pandas Are Not Known For Running'. Danny Ryan detailed the steps of the merge: a first block and the attestations coming in, ≈ 32 blocks in the 1st epoch, with 2/3 participation of validators needed to justify it. After the 2nd epoch, the first blocks in PoS were finalized and the Ethereum chain officially switched to PoS.

If these terms are foreign to you, don't worry, we will detail them in the following article.

The first block in Proof-of-Stake is this one: https://etherscan.io/block/15537394, we see it at the difficulty of the block which equals 0, meaning that the block has not been mined and no hashrate has been spent to produce it.

• Two critical updates preceded the Merge:

  • The “Bellatrix” update prepared the consensus layer for the Merge (in green on the diagram). In particular, it allowed the update of the structure of the blocks and introduced the slots of 12 seconds per block.Anyone running an Ethereum node and/or validator had to update their Ethereum client before September 6, 2022.

  • “Paris” which implements two EIPs (Ethereum Improvements Proposals):

    • EIP-4399 = introduces a change in semantics of the opcode DIFFICULTY (which is becoming obsolete) to PREVRANDAO.
      The usage remains the same.

    • EIP-3675 = also called “Merge EIP”: the update of the Merge which puts officially an end to PoW.

What is Proof Of Stake (PoS)?

Let's review some essential elements of PoS:

The PoS or PoW, the anti-Sybil mechanism associated with the consensus of blockchains, is central to their operation: it is what makes it possible to determine their state, i.e. to organize the blockchain by producing its blocks, which contain transactions. Unlike PoW which works with miners, PoS uses validators to determine the state of the blockchain.

Each block (grouping of user transactions) of the Ethereum blockchain is submitted to a group of randomly chosen validators, who verify the transactions by re-executing them, verify their signature and submit their vote to the network (in the form of attestations) in order to propose the validation of the blocks.Block validation time on Ethereum under PoW was 13/14 seconds. Now, the time per block is determined by fixed "slots" of 12s, 1 block per slot, validated by a randomly chosen validator. Several slots form an epoch. 2 epochs are needed for the blocks to be considered final and irreversible.

Validators are compensated for several things:

• When they are randomly chosen to offer blocks

• When they issue certificates, corresponding to a validator's vote on what the state of the chain represents

• Via “tips” or additional fees paid by users (introduced thanks to EIP-1559)

PoS brings a change for miners/validators. There are no major changes for users or app developers, or even network disruption. To learn more about the consensus mechanism of PoS, 0xfoobar made a great explainer here.

What are the advantages of PoS vs PoW?

• 99.95% less power consumption compared to running in PoW according to the Ethereum foundation. You can find a great explanation on ethereum.org.

• More decentralized: barriers to entry to become a validator are weaker. Less hardware is needed and there are no economies of scale to be made with PoS: revenues are linear (vs economies of scale over PoW). Also, access to the resources necessary for validation (ETH) is accessible to everyone, in the same way, at the same price, unlike the computer equipment and electricity of PoW.

• Reduction of ETH issuance by 90%. Some speak of “Triple Halvening” (in reference to Bitcoin Halvings) because 3 elements now come into play:

  • ETH issuance in the market will drop from ≈4.5% to ≈0.5%/year, or even less depending on network demand.

• EIP-1559 burns ETH with each transaction (since August 05, 2021 / block           12965000), which can trigger deflationary periods for ETH when the network is           congested, i.e. when there is more ETH burned than issued
• Many ETH are locked for validation: it represented ≈13,670,000ETH,           almost 9% of total ETH Supply or ≈$22 Billions according to           https://beaconcha.in/ at the time of the Merge)

• Less selling pressure on ETH : in addition to staked ETH, validators do not need to sell their ETH to operate their validator(s), unlike miners who had to sell their ETH to pay their electricity bills.

• More security : an attack to take full control over the network would require more than 66% of all staked ETH (vs 51% of hashpower on PoW). This attack becomes more and more expensive with the price of ETH. Holding ETH that we can lose and/or which would lose their value following an attack provides a double incentive not to attack the network.

Comparison table of PoW vs PoS

What are the next big steps for Ethereum?

Ethereum scaling has been a hot topic since its inception and the next major challenge of the “core devs”.

We have been able to prioritise The Merge thanks to the emergence of scaling solutions such as the Rollups, which relieved the L1 of Ethereum and allowed the Merge to emerge ( 🤭 ) first. It is around the Rollups that the Ethereum roadmap has been built for years; Vitalik spoke in 2020 of “rollup-centric ethereum roadmap”.

The Merge is a major upgrade, if not the biggest to date. In addition to the changes it brings, it lays the ground for the next big stages of the Ethereum roadmap, namely:

• The Surge : which brings significant improvements in performance and usability of rollups thanks to the long-awaited sharding (or danksharding). Expected for 2023.

• The Verge : “Statelessness” thanks to the verkle trees, which would allow nodes to no longer store the state permanently thanks to “witnesses”.

• The Purge: Eliminates historical data and technical debt, in particular to dispense nodes to store the full blockchain history.

• The Splurge: Brings a lot of features for Ethereum, like account abstraction, and many more.

As shown in this diagram (published by Vitalik in December 2021, not updated), the development of the main stages of the Ethereum roadmap has progressed in parallel.

It is expected that the pace of updates will be sustained in the months / years to come.

To be followed.

FAQ's

• As a user, how does this affect me? what I must do?
  Nothing! The apps take care of that for you. You will have the same data, tokens etc., in the same place.
  See the announcement from Aave 👇

• Does the Merge improve the scalability of Ethereum?
  Not immediately, even if blocks are validated 1 second faster on average.The merge however brings critical changes that lay the ground for future Ethereum updates, among which the long awaited sharding.Gas fee and transactions throughput remain the same.

• How to become a validator?
  There are 3 ways to participate in Ethereum validation under PoS, each representing their own tradeoff. The foundation has made very good guides that we invite you to follow.

  • Solo staking (requires 32ETH): https://ethereum.org/en/staking/solo/
    If the initial investment of the “solo staking” of 32ETH is substantial, it remains the most “trustless” and secure way to stake your ETH.Note: these ETH are locked until a new update will unlock them (the “Shanghai upgrade”). Validators still receive part of their rewards on a Mainnet address.

  • Staking as a service: https://ethereum.org/en/staking/saas/

  • Pool staking: https://ethereum.org/en/staking/pools/

• What is ETHPoW/ETHW?

  • ETHPoW (or ETHW) is the fork of Ethereum that remained in PoW

  • Major players in the ecosystem including stablecoins (USDT or USDC), DeFi/lending protocols (Aave), oracles (Chainlink), L2s (Starkware) and many others support the move to PoS.

  • The majority of services and applications will not support ETHPoW: this is the vast majority of what works today on Ethereum collapsing overnight, starting with all of DeFi. There will remain the historical data of the Ethereum blockchain and an unusable application layer.

  • To those who wish to take advantage of ETHPoW: the best strategy is to take good precautions and probably do nothing. The majority of the profits will be driven by traders, experts in MEV and arbitrage who have been working on the subject for months/years, in the blocks following the fork.

  • If the assets are replicated, their value will not be: it is estimated currently that the ETH tokens of the ETHPoW chain could be worth only ≈2% of the value of ETH.

  • Remember that it is likely that the chain will not persist over the long term and that it will remain a “no mans land” reserved for speculators.

  • According to Tarun Chitra (here), ETHPoW supporters have not yet managed to synchronize any node with their changes; which involve, among other things, replacing burnt gas fees (cf. EIP-1559) for miners to receive them instead, redistributing ETH belonging to the Ethereum Foundation etc.

  • Keeping ETHPoW active would imply that a mature ecosystem of miners, application developers, customers, investors and users stay active on the network.

  • And they will probably have to fork again to end the Difficulty Bomb obsoleting PoW on Ethereum...

Resources

• The Merge on the ethereum.org blog: https://ethereum.org/en/upgrades/merge/

• PoS: on ethereum.org blog:
  https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/

• Mega Merge Resource List https://notes.ethereum.org/Moiv99h9QTmI-imPL8pvQg?view

• Q&As: https:// ethmerge.com/

• Client Diversity: https://clientdiversity.org/#switch

• Ethereum Supply: https://ultrasound.money/

• Follow beaconchain stats: https://beaconcha.in/

• Twitter accounts to follow Ethereum (and the Merge) announcements: https://twitter.com/NathanSexer/status/1536756748194832386?s=20&t=XEOBBneAFkupVCQAXgy0pg