Ethereum: What is 'The Merge'?

Those who have been watching the crypto market for the past few months may have overheard a particular phrase, ‘The Merge’, specifically in reference to the decentralised, open-source blockchain Ethereum

This long-planned update to Ethereum’s network, previously referred to as Ethereum 2.0 or Eth2, has been the subject of much excitement – and some derision, as it has experienced near-constant delays while also promising to drastically improve the functionality of Ethereum as a network – as well as broadening the utility of its cryptocurrency, ETH.

But beyond some new terminology and shifting timelines, what is The Merge and how will it affect the crypto space?

What is ‘The Merge’?

Essentially, The Merge represents a change in how Ethereum’s blockchain operates, making the cryptocurrency significantly more energy efficient and providing much faster processing speeds. But in order to accomplish this, the underlying platform requires a very complex, and closely considered series of changes.

In direct terms, this “Merge” will move Ethereum’s consensus mechanism from a “Proof-of-Work” (PoW) model to a “Proof-of-Stake” (PoS) one. There are many reasons to make the switch from PoW to PoS, one of which is the severe reduction in power consumption. Instead of each miner individually solving complex computational equations in order to maintain the network, participants are required to hold an amount of a certain coin within the network itself. The amount offered will generally determine the chances of being selected to forge the next block in the chain. Validators then receive the fees for all transactions within that block as earnings. There are mechanisms in place to keep validators accountable and ensure that all transactions in the block are valid.

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What will be the outcome of Ethereum’s merge?

There are additional benefits to this choice of consensus mechanism and data management compared to the more traditional PoW. For one: participants no longer require expensive and complex mining rigs to take part in the earning process. PoS also incorporates the presence of active deterrents, such as “slashing” events – where a participant will have part of their offering or earnings removed for malicious or negligent conduct in the staking process, – ensuring a better standard of community conduct.

The new Ethereum infrastructure will also assist in improving current security measures across the network, while also allowing the integration of new preventative measures as its user base expands and cyberattacks become increasingly sophisticated.

For many, the road leading towards The Merge has been strewn with setbacks and delays, but in reality what has really been occurring behind the scenes is a series of carefully considered updates and modular changes that is intended to be a pain-free switch from PoW to PoS in August 2022.

Will Ethereum’s merge change the face of crypto

PoS is becoming an increasingly popular protocol for many crypto networks. It is seen as a more sustainable, more eco-friendly method of managing complex, constantly expanding blockchains.

At present, many networks use it as a central selling point when presenting the benefits and utilities of their services. Given Ethereum is second only to Bitcoin in terms of market capitalisation, The Merge means Ethereum will be the most prominent PoS blockchain in the market.
The Merge does not represent the end of updates that Ethereum is slated to undergo in the coming months and years. As highlighted by founder Vitalik Buterin, this is a major step forward for the network, which will then allow for the development and integration of further benefits.

It is likely that many other crypto networks will be watching The Merge closely and, pending Ethereum’s successful transition, may be considering a merge-like event of their own. This could be done as a means of expanding accessibility and efficiency, removing reliance on conventional blockchain mining, as well as improving their environmental impact.

What’s next for Ethereum?

Given the update is intended to reduce transaction costs across the network, this could facilitate increased adoption of Ethereum as a reliable, more secure and more efficient network than many of its competitors.

The Merge will likely lead to a reduction in new ETH supply. This presents a significant opportunity for investors who wish to become network validators within the new framework. This will allow them to collect earnings in exchange for activating validator software.

The Merge will also pave the way for a database management method known as “sharding” that will greatly increase transaction speeds, potentially scaling its ability up to 100,000 transactions per second or more.

Sharding is a term that generally describes the process of splitting a database horizontally to spread a load, thereby reducing bottlenecks in the system – something that will be vital as the Ethereum team vies to bring smart contract functionality into the mainstream. This aspect of the platform’s update process is slated to take place in 2023-2024.

As the crypto industry focuses on improving security, energy efficiency and functionality, many of Ethereum’s competitors will no doubt be watching closely to see the outcome of this significant update. Especially market leader Bitcoin, which has not yet shown any sign of interest in adopting the increasingly popular PoS protocol. Only time will tell how far-reaching The Merge’s impact will truly be.

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