The Merge has been the hottest topic in the blockchain ecosystem in recent weeks. We’re hearing about it all day long, and the subject is being turned on its head from every angle. The rest of this article promises to get to the heart of the matter, so you can finally understand what’s important about this event.
Ethereum changes consensus
Consensus is one of the 3 elements that make up a blockchain: 1. Network 2. Consensus 3. Application
Consensus is the method used to determine who will verify that the next block is compliant and can be integrated into the blockchain. This secures the network and ensures that all blocks have all the information required to create the blockchain.
Until now, Ethereum (like Bitcoin) has used Proof Of Work (PoW) consensus. Blockchain operators (known as miners) are required to provide computing power to solve a complex mathematical problem, so that they can create (mine) the next block.
Ethereum is now moving to Proof of Stake. This means that the consensus method used to determine who will be the next to validate a block is no longer based on a mathematical problem, but on a stake. All validators (equivalent to miners in a PoW blockchain) place a minimum of 32 ETH at stake, and can thus be selected to validate the next blocks. If they validate forged or fraudulent blocks, they are penalized. Some or all of the ETH they have pledged are then seized by the network, and they may even be temporarily banned.
In both cases, blockchain operators are rewarded for their contribution to network security. Rewards are distributed to miners/validators for each block they create, in tokens native to the blockchain concerned (ETH for Ethereum, BTC for Bitcoin).
What are the consequences?
Some have already been decided:
- Lower energy consumption to run the Ethereum network. This is the argument most often put forward by opponents of PoW consensus, and of blockchain in general. Indeed, consensus is an energy-intensive process. Computers and machines providing computing power require energy to operate. While there are many solutions to this problem, with PoS the question no longer arises.
- Reduced ETH emissions. In a PoW system, miners have significant electricity costs. As a result, enough new tokens need to be issued as mining rewards to ensure that it remains profitable for them to participate in the consensus. In a PoS model, the stakes are different, since block validators have no operating costs. As a result, the number of ETH issued as rewards should be divided by almost 10. This limits token inflation and mechanically increases token scarcity. This should have a positive impact on prices in the long term.
Others are still just suppositions:
- The subject of security often comes up. It’s as much a concern of Ethereum’s detractors as of some of its loyalists. The PoS consensus has been less tried and tested than the PoW, which has been running on Bitcoin for almost 14 years.
For ETH investors, this will have no impact on their tokens. The miners have already been ready for several months now. Thanks to the longest chain principle, the transition will take place automatically, with no need for human intervention.
The Roadmap
This is a technical aspect linked to the difficulty of mining/block creation, which will determine when this transition takes place. When the Total Terminal Difficulty (TTD) reaches 58750000000000000000000, the last block will be mined in PoW and the migration will take place to PoS. This is why it has been so difficult over the last few months to define exactly when this transition will take place, as it depends on a technical element.
But now, with less than 24 hours to go, the timing is much more precisely determined. It’s scheduled for tonight in France, September 15, 2022, at around 5 a.m. Many media outlets and websites have been displaying countdowns for several days now.
This transition has been planned since the very beginnings of Ethereum. Back in 2014, even before Ethereum’s launch, Vitalik Buterin, one of the blockchain’s co-founders, published an article on the Ethereum Foundation website about Proof of Stake. At the time, he already mentioned the possibility of migrating to this type of consensus in the future.
The Merge is just one step in Ethereum’s transition. According to Vitalik, once The Merge is completed, Ethereum will be only 55% developed. The following stages, named The Surge, The Verge, The Purge and The Splurge, will aim to make the blockchain more scalable and improve decentralization. Doesn’t the future of Ethereum lie in solving the famous blockchain trilemma?
