Maybe you’ve heard a lot about the upcoming Ethereum ‘Merge.’ But what is it all about?
Aside from being one of 2022’s most high-profile events in the crypto industry, the Merge is also one of the most substantial upgrades in Ethereum’s history. The merging of Ethereum’s mainnet with the Beacon Chain’s proof-of-stake (PoS) system spells the end of the proof-of-work (PoW) consensus mechanism for Ethereum.
The ‘Merge’ name is crypto slang for the PoW to PoS transition. This transition will enhance the security, speed, and scalability of Ethereum’s network.
This is a long-awaited change. Lately, headlines are intensifying as many now predict the transition could officially occur as soon as September.
Understanding PoW vs. PoS
It’s vital to have a firm grasp of PoW and PoS consensus mechanisms to understand the Merge better.
Proof of Work (PoW): A PoW consensus mechanism requires network members to solve mathematical puzzles to create new blocks. This process is called ‘mining,’. Miners receive economic payoffs for their effort. The PoW mechanism is prevalent in the original Bitcoin whitepaper, even though the idea of PoW emerged in 1993. However, PoW requires a lot of electricity. In Ethereum’s case, many have complained about how it inhibits transaction speed and scalability.
Proof of Stake (PoS): This mechanism has validators staging assets for the opportunity to validate new transactions. Winners are selected to validate, and all validators receive a reward once a new block is created. The mechanism has grown in popularity due to its security advantages and the process requiring much less electricity. Hopes are the switch will lead to a 99% energy reduction and potentially help the network hit 100,000 transactions.
PoS and The Ethereum Merge
The shift to PoS is a monumental achievement for Ethereum, especially since the vast majority of the blockchain world still relies on PoW. The Beacon Chain functions as a separate parallel blockchain to Ethereum and primarily operates as a de-facto ‘testnet’ for a PoS Ethereum.
The Merge is the exact moment the two chains come together, and Ethereum changes to a PoS-based algorithm. This merge has been in the works for years, and many questions emerged as a final merge date became less clear as time passed.
However, on July 14th, an Ethereum Foundation member shared a soft Merge schedule with a planned September 19th completion date. These firmer details have made many excited and hopeful the end might be in sight.
An Ethereum developer also published details about the final testnet merge to the Beacon Chain in late July. This is an important stepping stone before the Merge.
The Merge And Ethereum Investor Confidence
Many hope the Merge will boost Ethereum’s price, especially since the broader crypto market has been struggling mightily for many months.
However, one survey from Galois Capital revealed that about 33% of respondents believed the Merge would lead to two parallel blockchains, with one sticking with the old PoW mechanism.
Ethereum Classic (ETC), the result of the DAO Hack back in 2016, has also enjoyed a massive price surge throughout 2022. However, ETC still relies on a PoW mechanism, and Ethereum co-founder Vitalik Buterin encouraged people to migrate back to ETC if they wanted to stick with a PoW mechanism.
Ultimately, it’s not entirely clear if the Merge will take place in September or how the exact process will impact Ethereum’s price. But it’s clear the date is drawing closer, and enthusiasm only looks to grow.