Get ready for Ethereum’s significant upgrade aka “merge”
With chaos running rampant in the market, one major development is staying low without making any headlines in the market. The long-awaited Ethereum “merge” is also known as ETH2. Vitalik Buterin, Ethereum’s co-founder, said that it could happen this August. The move aims to change the energy-intense “Proof-of-Work” system that Ethereum is currently using to a “Proof-of-Stake” system, which will allow the network to be 99% more efficient and increase the security and the processing speeds.
The merger is a sophisticated, years-long technological project that several setbacks have hampered.
- Proof-of-Work is the original “confirmation mechanics” of Bitcoin, allowing many computers across a decentralized network to verify and agree on the transaction’s legitimacy, which Ethereum also uses to create new coins. The process is vast and requires a tremendous amount of energy which is contributed by “virtual” miners around the globe who compete with each other to solve a complicated, time-consuming math puzzle. The winner is awarded a predetermined sum of new ETH and gets to update the blockchain with the most recent block of verified transactions.
- The increase in the network traffic due to innovations like DeFi and NFTs has caused a bottleneck in the bandwidth limitation of Proof-of-Work. This has also caused unpredictable spikes in gas fees or transaction fees, with Proof-of-Stake that uses fewer transaction fees and Ethereum alternatives like Solana and Avalanche designed to be faster, theoretically more secure, and less resource-intensive. Proof-of-stake networks rely on “validators” who pay their own ETH to a “staking pool” in return for the chance to update the blockchain with the newest block of confirmed transactions, earn newly minted tokens, and pocket a percentage of transaction fees.
- Ethereum “Merge,” as they say, is an upgrade by combining the Proof-of-Work blockchain with the Proof-of-Stake blockchain called the Beacon Chain that has been around since 2020. On the Beacon Chain, you can only stake your ETH right now. Hundreds of thousands of validators have already invested over 10 million ETH. The Beacon Chain will combine with the existing proof-of-work chain and verify new transactions and issue new ETH with the upgrade.
- As per Buterin, the merge should happen in August; Ethereum will reach a milestone called the “difficult bomb,” where the Proof-of-Work blockchain will start degrading. The Proof-of-Work will start operating slowly after reaching the milestone, encouraging existing miners to join the new blockchain as validators. Although the “merge” has been in the works since 2015, due to numerous delays over the years forced the developers to postpone. Buterin did confirm that maybe one more delay could be possible.
Ethereum is a smart contract compatible with blockchain, powering right from DeFi to Bored Ape Yacht Club. However, ever-increasing traffic has slowed down the network, surging fees to soar high, and inspiring a host of new competitors to emerge. For this reason, the merge is one of the most eagerly anticipated technological developments in crypto history. Following the merger, Ethereum’s developers are planning a slew of changes that will further transform the second-largest cryptocurrency by market capitalization, including splitting the network into 64 “shard” blockchains, which should result in significantly faster transaction speeds and lower fees.