Ethereum Merge is Explained! The Ethereum Mainnet currently employs proof-of-stake, but this was not always the case. The Ethereum network has been based on the Proof of Work consensus mechanism since its inception, and thus requires computational power to ensure the integrity of its blockchain.
In terms of market capitalization, Ethereum is the second largest Proof of Work network as well as the largest platform that supports smart contracts. As a result, its sustainability performance has gotten a lot of attention.
In an upgrade known as “the Merge,” Ethereum switched its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS) on September 15, 2022. This has reduced Ethereum’s energy consumption by 99.95%. The Merge marked the end of proof-of-work for Ethereum and started the era of a more sustainable, eco-friendly Ethereum.
What does Ethereum Merge mean?
The Merge was the integration of Ethereum’s original execution layer with its new Beacon Chain, i.e. the proof-of-stake consensus layer. It eliminated the need for energy-intensive mining and instead allowed the network to be secured using staked ETH.
Ethereum has officially transitioned to a PoS model as of mid-September 2022. It gave birth to Ethereum 2.0, a new version of Ethereum. This has resulted in a 99.95% reduction in Ethereum’s energy consumption and the ability to further scale the Ethereum ecosystem. The successful transition was a truly exciting step toward realizing the Ethereum vision of greater scalability, security, and sustainability.
Why Ethereum Merge
In short, to reduce energy consumption, resulting in a new and energy-efficient Ethereum, as well as to make room for other scaling functionalities such as sharding.
Before the Merge, Drake estimated that Ethereum’s total energy consumption was around 0.34% of the global total. It would be incorrect to claim that the Merge would reduce “global electricity consumption” by that amount, given that many mining machines that previously supplied hash power to Ethereum were immediately directed to alternative PoW blockchains.
According to Ethereum.org, the Ethereum merger will result in lower gas fees and higher throughput.
How did Ethereum Merge go?
Throughout Ethereum’s history, developers planned for a shift from proof-of-work to proof-of-stake. The Beacon Chain was launched as a separate blockchain from Mainnet, running in parallel, on December 1, 2020.
Initially, the Beacon Chain did not process Mainnet transactions. It was instead reaching an agreement on its own state by agreeing on active validators and account balances. Following extensive testing, it was time for the Beacon Chain to reach an agreement on real-world data. The Beacon Chain became the consensus engine for all network data after The Merge, including execution layer transactions and account balances.
The Merge marked the official adoption of the Beacon Chain as the block production engine. Mining is no longer a viable method of generating valid blocks. Instead, proof-of-stake validators have taken on this role, and they are now in charge of determining the validity of all transactions and proposing blocks.
Furthermore, no history was lost as a result of The Merge. When Mainnet and the Beacon Chain merged, the entire transactional history of Ethereum was merged.
In case you’re curious about how the Ethereum Merge affects the price of Ether. The Merge also went above and beyond to raise the price of Ether. The price of ether increased after the merger and was trading at around $1,640, up more than 3% in the hour following the Merge.
Ethereum Merge Benefits
The transition to proof-of-stake brings about a lot of benefits to the Ethereum ecosystem and holders of Ether.
Ability to Stake
Staking is the sole act of delegating and locking your tokens in the Blockchain. This act helps secure the Blockchain network and users get incentives in the form of annual percentage yield (APY) in return.
The Merge has brought about a new system that operates by staking Ethereum to a verifier node, holders willing to simply lock up their capital may be able to earn significant in-kind returns.
While mining Ethereum takes a considerable deal of upfront investment and effort to engage in, staking is more accessible to everyday users of Ethereum. There are still some barriers to entry. Holders need to commit a minimum of 32 Ethereum to run their own nodes for validating transactions, which is cost-prohibitive for many investors.
Although there are a number of widely used exchange services, like Binance.US and Coinbase amongst others, now enable customers who hold less than 32 Ethereum to enjoy these benefits by facilitating staking in a relatively simple and automated process. Right now, staking Ethereum on Binance.US pays a 6% APY, and staking on Coinbase pays a 4% APY.
Layer 2 Scaling Solutions
The Merge paves the way for Layer 2 scaling solutions like sharding. For Ethereum to attain its full potential for a scalable and sustainable system, two other phases are left– an increase in throughput and a lowering of gas fees. The Merge won’t solve these problems directly, but it’s a step in the right direction to solving these problems.
The Merge will help Ethereum eventually increase its capacity so that it becomes faster and less costly. To do this, a process known as “sharding’ will be introduced. Sharding will help to split or distribute data horizontally to spread the load. So if there’s a pool of transactions to be verified on the blockchain, the integration of roll-up can spread the data to several shards on the network, thereby causing an increase in throughput.
Furthermore, sharding will lower the barriers that come with being a validator. When sharding is introduced, it will reduce the data storage requirements, since validators will be responsible for storing a fraction of the blockchain’s data. This means that in the future, you could run the Ethereum network from your laptop or phone.
According to Ethereum.org, sharding is planned to be unveiled sometime in 2023, depending on how much progress is made post-Merge. Once launched, sharding will help Ethereum get one step closer to reaching its ultimate goal of becoming “powerful enough to help all of humanity.”
Ethereum Merge Environmental Impact
According to Digiconomist, Ethereum mining consumes between 46.31 and 93.98 terawatt hours (TWh) per year, roughly the same as the country of Austria. But with the Ethereum Merge to Proof of Stake (PoS), energy consumption was reduced to 99.95%.
Ethereum’s transition to proof-of-stake (PoS) is claimed to be the most significant upgrade in the history of Ethereum, aiming for less electricity consumption and preparing the blockchain for future scaling upgrades. This in turn makes Ethereum a green blockchain, using ETH instead of energy to secure the network. The proof-of-stake mechanism in Ethereum consumes only 0.0026 TWh/yr across the entire global network.
According to Ethan Vera, chief operations officer of mining services firm Luxor Technologies, “20%-30% of ETH miners have found a temporary new home amongst other blockchains, while the rest are shut down.” This means that the impact on global energy consumption and climate change may be limited because the computers previously used to mine Ether may now be used to mine other, more energy-intensive cryptocurrencies.
The impact of Ethereum’s transition from proof-of-work to proof-of-stake was investigated by CCRI. Annualized electricity consumption was reduced by 99.988%. Similarly, Ethereum’s carbon footprint has been reduced by approximately 99.992%. (from 11,016,000 to 870 tonnes CO2e).
In the figure above, this corresponds to a reduction in emissions from the height of the Eiffel Tower to the size of a small plastic toy. As a result, the environmental cost of network security is significantly reduced. Simultaneously, the network’s security is thought to have improved.
While the Merge has many benefits for Ethereum itself, the biggest beneficiary is the planet. Thus, the Merge has substantially enhance the environmental sustainability of the Ethereum network.
Bottom line
The Merge is the most significant update for the Ethereum network and the cryptocurrency space in general. It changes the consensus mechanism from proof of work to proof of stake, reducing the electricity consumption and the carbon footprint of the network significantly.
Although this is just the beginning of Ethereum’s transition, more scaling functionalities that could not be integrated into the Proof of Work model can be actualized using the Proof of Stake model, like sharing, zk roll-up, etc. This will significantly increase Ethereum’s scalability and throughput, thus bringing Ethereum one step closer to achieving full scale, security, and sustainability.
