Ethereum Merge is Explained!
The Ethereum Merge has brought a significant change to the Ethereum Mainnet, transitioning it from the Proof of Work (PoW) consensus mechanism to the Proof of Stake (PoS) consensus. Prior to this upgrade, Ethereum’s blockchain relied on PoW, which required substantial computational power to maintain its integrity.
Being the second-largest Proof of Work network and the largest platform supporting smart contracts in terms of market capitalization, Ethereum’s sustainability has been a subject of considerable interest.
The Merge took place on September 15, 2022, and with this upgrade, Ethereum’s energy consumption has been drastically reduced by 99.95%. This shift from PoW to PoS marked the end of the era of proof-of-work for Ethereum, ushering in a more sustainable and eco-friendly approach for the network.
What does Ethereum Merge mean?
The Merge involved combining Ethereum’s original execution layer with its new Beacon Chain, which operates as the proof-of-stake consensus layer. By doing so, the need for energy-intensive mining was eliminated, and the network’s security was achieved through staked ETH.
As of mid-September 2022, Ethereum officially completed its transition to a PoS model, giving rise to Ethereum 2.0, a new version of the platform. This significant upgrade resulted in an impressive 99.95% reduction in Ethereum’s energy consumption and unlocked the potential for further scalability within the Ethereum ecosystem. The successful transition marked a momentous milestone towards realizing Ethereum’s vision of enhanced scalability, security, and sustainability.
Why Ethereum Merge
In short, the Merge aimed to decrease energy consumption, leading to a more energy-efficient Ethereum and creating space for additional scaling capabilities like Sharding.
Before the Merge, Drake’s estimation indicated that Ethereum’s total energy consumption accounted for approximately 0.34% of the global total. However, it would be inaccurate to assert that the Merge would directly reduce “global electricity consumption” by that proportion. This is because many mining machines that were previously used to mine Ethereum’s PoW blocks were redirected to other PoW blockchains after the Merge.
According to Ethereum.org, the Ethereum merger is expected to result in reduced gas fees and increased transaction throughput.
How did Ethereum Merge go?
Throughout Ethereum’s development, there was a planned transition from the proof-of-work (PoW) to the proof-of-stake (PoS) consensus mechanism. The Beacon Chain, launched on December 1, 2020, operated as a separate blockchain, running in parallel with the Mainnet.
Initially, the Beacon Chain focused on reaching a consensus on its own state, determining active validators, and account balances. After thorough testing, it was time for the Beacon Chain to agree on real-world data, and following The Merge, it became the consensus engine for all network data, including Mainnet’s execution layer transactions and account balances.
With The Merge, the Beacon Chain officially took over as the block production engine, rendering mining obsolete. Now, the responsibility of generating valid blocks lies with the proof-of-stake validators, who also determine the validity of all transactions and propose blocks.
Importantly, no transactional history was lost during The Merge. When Mainnet and the Beacon Chain merged, the entire transactional history of Ethereum was preserved.
Regarding the price of Ether, The Merge had a positive impact, causing an increase in its value. After the merger, Ether’s price surged, trading at approximately $1,640, representing an increase of more than 3% within an hour following The Merge.
Ethereum Merge Benefits
The transition to proof-of-stake has brought numerous benefits to the Ethereum ecosystem and Ether holders.
Staking involves delegating and locking tokens in the Blockchain, which helps secure the network, and users receive incentives in the form of annual percentage yield (APY). With The Merge, a new system allows staking of Ethereum to a verifier node, offering holders the opportunity to earn significant in-kind returns simply by locking up their capital. While mining Ethereum requires substantial upfront investment and effort, staking is more accessible to everyday users of Ethereum.
However, the requirement to commit a minimum of 32 Ethereum to run their own validating nodes may be cost-prohibitive for many investors. To overcome this, widely used exchange services like Binance.US and Coinbase now enable customers with less than 32 Ethereum to enjoy staking benefits through a relatively simple and automated process. Currently, staking Ethereum on Binance.US offers a 6% APY, while staking on Coinbase provides a 4% APY.
Layer 2 Scaling Solutions
The Merge opens the door for Layer 2 scaling solutions such as sharding. While The Merge itself does not directly solve Ethereum’s issues of increased throughput and reduced gas fees, it sets the stage for future improvements in this area. Sharding, an upcoming process, will help split or distribute data horizontally to spread the network’s load, resulting in increased throughput when verifying a pool of transactions on the blockchain.
Additionally, Sharding will lower the barriers for validators, reducing data storage requirements by assigning them to store only a fraction of the blockchain’s data. This means that in the future, it may be possible to run the Ethereum network from a laptop or phone. Ethereum.org has plans to unveil Sharding sometime in 2023, depending on post-Merge progress. Once implemented, Sharding will bring Ethereum closer to its ultimate goal of becoming a powerful system capable of benefiting all of humanity.
Ethereum Merge Environmental Impact
According to Digiconomist, Ethereum mining used to consume between 46.31 and 93.98 terawatt hours (TWh) per year, approximately equivalent to the energy consumption of Austria. However, with the Ethereum Merge to Proof of Stake (PoS), energy consumption has been dramatically reduced to 99.95%.
Ethereum’s transition to proof-of-stake (PoS) is considered the most significant upgrade in the history of the platform, with the main goals being reduced electricity consumption and preparation for future scaling enhancements. This shift has made Ethereum a green blockchain, as it now relies on ETH instead of energy to secure the network. The proof-of-stake mechanism in Ethereum now consumes only 0.0026 TWh per year across the entire global network.
Ethan Vera, the COO of Luxor Technologies, reported that around 20%-30% of ETH miners have temporarily moved to other blockchains, while the remaining miners have ceased their operations. This suggests that the overall impact on global energy consumption and climate change might be limited because the computers that were previously used to mine Ether are now being utilized for mining other, more energy-intensive cryptocurrencies.
CCRI conducted an investigation into the effects of Ethereum’s shift from proof-of-work to proof-of-stake. They found that annualized electricity consumption decreased by 99.988%, and Ethereum’s carbon footprint was reduced by approximately 99.992% (from 11,016,000 to 870 tonnes CO2e).
The diagram shows a reduction in emissions from the height of the Eiffel Tower to the size of a small plastic toy, indicating a significant decrease in the environmental impact of network security. This reduction in emissions also suggests an improvement in the network’s security.
While the Merge offers numerous advantages for Ethereum, the most significant beneficiary is the planet. Consequently, the Merge has greatly enhanced the environmental sustainability of the Ethereum network.
The Merge represents the most momentous upgrade for the Ethereum network and the entire cryptocurrency domain. By switching the consensus mechanism from proof of work to proof of stake, it achieves a considerable reduction in electricity consumption and the network’s carbon footprint.
While this marks the initial phase of Ethereum’s transition, the Proof of Stake model opens the door for additional scaling functionalities that were not feasible under the Proof of Work model, such as Sharding, zk roll-up, and more. These advancements will substantially boost Ethereum’s scalability and throughput, bringing it closer to achieving complete scale, security, and sustainability.
Caleb is a technical writer at AlteBlock with over 2 years of experience in covering DeFi-related content such as crypto news, exchange reviews, and guides. He is also a Civil engineering graduate who can be found on-site when not writing an article.