August 18, 2022 Skalex

Ethereum Merge – What’s Happening and What Comes Next?

Written by:
Skalex
Published on:
August 18, 2022

The upcoming Ethereum Merge is the biggest milestone in the history of the world’s first smart contract platform. It will mark the most significant transformation undertaken by any blockchain in history – changing the entire consensus model. So what’s happening, and what can we expect once the Merge is complete?

What is the Ethereum Merge?

The Merge is the term used to describe Ethereum’s transition from using the energy-intensive Proof-of-Work (PoW) consensus to the more efficient Proof-of-Stake (PoS). It’s the second major deliverable in a larger plan to make Ethereum more scalable, efficient, and cost-effective.

Let’s briefly recap. Following Ethereum’s launch in 2015, it didn’t take long for the ICO craze to take off, and traffic on the network spiked quickly. When Dapper Labs launched Cryptokitties, the first NFT game, the congestion became evident as transactions slowed and gas fees skyrocketed.

Ethereum’s core developers began working on a plan to upgrade the network, which has gone through several iterations over the years. Eventually, they settled on a plan that would involve three key steps. Firstly, launch a new PoS chain called the Beacon chain, which will run in parallel to the Ethereum mainnnet. Secondly, merge the Ethereum mainnet into the Beacon chain, protecting all transaction history to date. Third, introduce sharding – a type of partitioning that allows parallel processing of blockchain transactions, thus increasing throughput.

 

Ethereum Merge

Source: ethereum.org

The Beacon chain launched in December 2020, completing the first step. More recently, developers have made progress towards implementing the Merge. On August 10, the network underwent the last major rehearsal before the mainnet upgrade, after which Ethereum researchers confirmed that the Merge had been completed successfully on the Goerli testnet. Next, the full mainnet Merge is expected on September 19, although one developer has indicated it could take place slightly earlier.

So what can we expect to happen when the Merge is finalized? Here’s what we know so far.

Following the Merge

Currently, the Beacon chain operates with an active validator set, achieving consensus over validators and their account balances using the Proof-of-Stake model. Once the Merge takes place, these validators will take over block production on the Ethereum mainnet using PoS. This means that blocks on Ethereum will no longer be mined, and Ethereum mining will become obsolete.

The Merge will preserve all of the history and account balances on the existing Ethereum mainnet, meaning that there are no actions required from any user to “migrate” their ETH or Ethereum-based. However, that hasn’t stopped fraudsters from attempting to circulate misinformation about the Merge and a mythical “ETH2” token to users in an attempt to extract their private keys. Exchanges and dApp developers may wish to remind users of the risks here as the date of the Merge edges closer.

While ETH holders don’t need to undertake any action to preserve their balances, some parties using Ethereum are required to take action. If you operate a staking node or provide staking infrastructure, or are a non-validating node operator or infrastructure provider, you should check the Ethereum website for the steps you need to follow.

The Merge will happen with no downtime, so dApp developers and token operators don’t necessarily need to take any actions either. However, the Merge comes with some changes to areas such as consensus, block timing, and opcode changes, among others. This blog post contains more information that may be useful for dApp and smart contract developers.

No Staking Withdrawals Until the Next Upgrade

To participate in block production under PoS on the Beacon chain, it’s required to stake 32 ETH. This requirement will remain in place after the Merge, although anyone can participate as a non-validating node operator and help secure the Ethereum network with no stake. So far, anyone who has staked 32 ETH on the Beacon chain has been unable to withdraw their stake. Following the Merge, this restriction will remain in place until the next scheduled upgrade, called Shanghai.

There is currently no date set for Shanghai. Therefore, please note that if you have staked ETH as a validating node (or plan to following the Merge), you won’t be able to withdraw your funds until after Shanghai completes. It’s also worth noting that validator withdrawals will be limited to six validators per epoch, or around 1,350 per day, to protect the network from any mass exodus compromising security.

However, validating nodes will be eligible to receive the fee rewards and maximal extractable value immediately after the Merge meaning there’s still an incentive to participate as a validator.

When Scalability?

Finally, there are a couple of common misconceptions about the Merge and what it means for transacting on Ethereum in the future. Although the Merge is a significant milestone on the journey to making Ethereum more sustainable, it will only bring incremental improvements to speed, and gas costs aren’t expected to reduce either.

The block production speed will increase from around one block every 12 seconds rather than one every 13.3 seconds, so it’s not likely to be noticeable from the user’s perspective. Similarly, gas fees will remain a function of network demand, so they will stay around the same levels.

However, the roadmap for Ethereum is more promising on operational improvements, focusing on scaling user activity at layer 2 using rollups. Moving to a PoS consensus is a critical enabler for the following stages of the roadmap and, furthermore, makes Ethereum more sustainable by eliminating PoW.

While the original smart contract platform may not yet be ready to achieve the long-term vision of becoming low-cost, scalable, and sustainable, the Merge represents the most extensive progress in achieving one of those three to date. It also provides the foundational layer for realizing the full vision – hopefully not too far in the future.