What Is The Ethereum Merge From PoW to PoS and Why Is It Important?

What Is The Ethereum Merge From PoW to PoS and Why Is It Important?

The Merge is Ethereum’s long-anticipated upgrade when the second-largest cryptocurrency migrates from its current proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model. Due to its complexity and utmost importance, the Merge is being heralded by crypto pundits as a defining moment for Web3.

The Merge will mark the very end of the PoW Ethereum and give birth to Ethereum 2.0, which will be based on a PoS consensus algorithm. Ethereum 2.0 will be much cheaper, faster, and significantly more energy efficient compared to the PoW Ethereum (or Ethereum 1.0).

The transition to PoS has been long and complicated, and it cannot be summarized only with the Merge. In fact, the Merge is the first of the five key phases that need to be completed in order for Ethereum to truly upgrade to its second version and be able to deliver on its promises of a faster, cheaper, and more efficient network.

Merge, Surge, Verge, Purge, and Splurge: 5 Key Steps to Ethereum 2.0

Ethereum 2.0 promises to tackle Ethereum’s scaling solution. As of now, Ethereum can handle a total of 15 transactions per second, which is obviously not enough. Ethereum 2.0 aims to exponentially increase the network’s throughput, improving its Transactions Per Second (TPS) capacity to one hundred thousand.

However, to achieve this goal, the network should undergo several updates. The Merge is just the first stage, with the other four key phases of the protocol’s incoming development being the surge, verge, purge, and splurge, which have a pivotal role in Ethereum’s scaling, cleanup, and evolution.

“The Merge is proof of stake. The Surge is sharding, and The Verge is Verkle Trees. The Purge is things like state expiry and deleting old history, and The Splurge is basically just all of the other fun stuff,” Ethereum mastermind Vitalik Buterin said during the annual Ethereum Community Conference (EthCC) in Paris, France.

What Is The Merge?

The “Merge” is when the Ethereum blockchain transitions from the PoW mechanism to a PoS consensus model through the merging of the Ethereum mainnet (blockchain) and the Beacon Chain. The upgrade will fundamentally change the way transactions take place on the Ethereum blockchain.

The Merge will take place via a two-step process. First, Bellatrix, which prepares Ethereum’s Beacon Chain to be merged with the platform’s mainnet, will be activated. Bellatrix successfully took place on Sept 6, 2022.

The second phase of the Merge is the Paris upgrade, which will be the execution layer that will transition Ethereum from proof-of-work to proof-of-stake. Paris will be triggered by a specific Total Difficulty threshold, called the Terminal Total Difficulty (TTD).

What Is The Ethereum Merge From PoW to PoS and Why Is It Important?

Why Does The Merge Matter?

The Merge and its subsequent changes can benefit Ethereum in many ways. According to the Ethereum Foundation, the transition will allow the Ethereum network to reduce its energy consumption by around 99%. Once Ethereum becomes more energy-efficient, its adoption might grow exponentially.

This could also help address environmental concerns regarding the second-largest cryptocurrency. The negative impact of crypto transactions on the environment has been top of mind for many cryptocurrency critics, and Ethereum’s shift to the less energy-intensive PoS is viewed as a significant improvement.

As noted above, one more benefit of the Merge and PoS would be in terms of scalability. Following the merge, Ethereum is expected to be able to handle hundreds of thousands of transactions per second, compared to the current 15 transactions per second.

When Will the Merge Happen?

The Ethereum Foundation, a non-profit organization dedicated to supporting Ethereum, has recently shared a tentative date for the Merge. In a blog post, the foundation said the upgrade will be fully completed between September 10 and 20.

The activation is scheduled for epoch 144896 on the Beacon Chain, which should occur at around 11:34:47 UTC. After this, the Terminal Total Difficulty (TTD) value triggering the Merge will be 58,750,000,000,000,000,000,000. The Ethereum developers expect that TTD to be reached around September 15 to 16.

Just recently, Buterin also confirmed that the Merge is still expected to happen around September 13 to 15.

What happens immediately after The Merge?

Nothing specific will happen to ETH holders right after the Merge. ETH balances on centralized exchanges or other crypto wallets will remain the same. The Merge would not lead to the creation of a new token (like ETH2), though some exchanges might choose to use the ETH2 ticker following the Merge.

Furthermore, staked ETH balances won’t be unlocked at the time of the Merge. In fact, staked ETH won’t be available until the Ethereum 2.0 upgrade is completed, meaning all the five key phases of the upgrade are activated.

However, one thing that will happen immediately after the merge is the triple halving, which is nearly equivalent to three Bitcoin halvings. The triple halving will reduce the ETH inflation rate from 4.3% to 0.43%, which is why the Merge is expected to also benefit Ethereum in terms of price.

How to Prepare for The Merge?

There are no specific mandates for ordinary ETH users ahead of the Merge. The only cohort that needs to really prepare for the upgrade is node operators, who need to update their software ahead of the final upgrade of the network. A failure to do so will result in the validator being stuck on a chain that is incompatible with the new version of the network.

Those working with staking nodes must authenticate both layers with a so-called shared JWT secret so that they can communicate securely. They should also set fee recipients’ addresses to receive the transaction fee tips you would receive.

In addition, non-validating node operators or providers of infrastructure need to install a consensus layer client aside from the execution layer client. They would also need to authenticate two clients with a shared JWT secret so they can communicate secretly.

Disclaimer. This material should not be considered as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.