The most consequential network upgrade in Ethereum’s history is set to take place on or around September 14th. So in anticipation of the big day, here is a primer on the approaching update known as “The Merge”. 

What is The Merge? 

The Merge is the second of two phases transitioning the Ethereum network from a Proof-of-Work (PoW) consensus model to Proof-of-Stake (PoS). Research on such a transition began even before the Ethereum network launched in 2015. Ethereum developers devised a plan to decouple the network’s execution layer (EVM) that secures transactions from the consensus layer (PoW) so that an orderly and well-tested transition to Proof-of-Stake was possible and to allow for specialized development of clients for each layer.  

In December 2020, the first phase of the PoS transition kicked off with the launch of the so-called Beacon Chain, a PoS consensus layer built to run alongside the PoW Ethereum mainnet and serve as a live network for testing. Since the launch of the Beacon Chain, Ethereum developers have been closely monitoring the volume of staked Ether, the number and quality of PoS clients for validators to choose from, and the progress of testing across multiple Ethereum shadow forks and testnets, among other measures of the network’s resiliency and security. 

Phase two of the PoS transition, The Merge, was repeatedly delayed primarily due to a lack of diversity in the consensus layer clients run by Beacon Chain validators – an issue that has now been determined to be sufficiently resolved to proceed with the network upgrade. 

And so, the second and final phase of Ethereum’s transition to Proof-of-Stake is imminent. Unlike past Ethereum updates that were timed based on a specific block height (or number), the merge will occur at “Total Terminal Difficulty” 58750000000000000000000 as determined by the Ethereum Foundation. The use of this unique indicator is just one of many precautions being taken against perceived attack vectors related to the network transition. As soon as Total Terminal Difficulty (TTD) is reached, the entire transaction history of the Ethereum network will be merged onto the Beacon Chain and the Ethereum mainnet will be validated by the Beacon Chain’s Proof-of-Stake consensus mechanism from then on. If all goes to plan, no network downtime will occur. Proof-of-Work mining to secure the Ethereum mainnet will cease for good. 

How might The Merge impact cryptocurrency investors and traders? 

No action is required from holders of any Ethereum network tokens and it is unlikely token holders will notice any change following the network upgrade. For information specific to how Bittrex is handling the Merge, see this article and watch for future announcements related to any Proof-of-Work hard forks.

So then why does The Merge matter? 

Post-Merge, the transition to Proof-of-Stake will significantly reduce the energy usage required to secure the Ethereum network – crypto’s highest volume network. Some estimates place the energy reduction at greater than 99% –  resulting in a massive reduction of crypto’s carbon footprint. This change will pave the way for financial institutions and other companies building on the Ethereum network to be ESG compliant. This should also help address past critiques of Ethereum relating to its energy usage and impact on climate change. 

The Merge is a step toward greater network scalability which may ultimately mean lower on-chain fees and faster transactions. The upcoming upgrade itself is not expected to have a noticeable impact on fees or speed, but it does lay the foundation for implementation of an innovation known as “sharding” which has the potential to multiply the network throughput. 

The Proof-of-Stake method of network validation penalizes bad actors on the network by slashing their staked ETH holdings, creating a new deterrent to those who would attack the Ethereum network. 

Yet another Merge impact relates to the Ethereum network’s token Ether. The end of Proof-of-Work means the end of ETH rewards paid out to miners. This reduction in ETH issuance is expected to be similar in scale to about three Bitcoin halvenings happening simultaneously. The drop in issuance combined with the ETH fee burning already in place, may result in the total supply of ETH decreasing by 50% or more over the next couple decades until an equilibrium is found. Staked ETH may become more accessible to the average user post-Merge, potentially forming the backbone of a new era in Decentralized Finance. 

And finally, an unintended consequence sure to delight gamers: Ethereum mining rigs – one of the largest sources of demand for high-powered graphics cards – will disappear overnight. Post-merge might it be time to splurge on a GPU or two to build out your dream machine? 
 

The Endgame 

In future articles, we’ll discuss what comes next for the Ethereum network. Stay tuned for posts about upcoming stops on the Ethereum roadmap: The Surge, The Verge, The Purge, and The Splurge. 

Resources 

Bittrex statement on The Merge (Statement on the Ethereum Merge) 

Bittrex article on Tenants of Blockchain (Fundamental Tenants of Blockchain)

Information from the Ethereum Foundation on The Merge (The Merge | ethereum.org) 

Countdown to The Merge (Wen Merge?) 

Vitalik Buterin’s argument in favor of Proof-of-Stake (Why Proof of Stake (Nov 2020) (vitalik.ca)) 

Justin Sun’s defense of Proof-of-Work (Justin Sun Says Proof-of-Work ‘Essential’ Part of Ethereum (coindesk.com)