The Ethereum Merge is one of the most anticipated events in the cryptocurrency world. The Merge has long been anticipated because it is expected to change the landscape of Ethereum, one of the most widely used blockchains.
Ethereum is a smart contract network on which developers can create their own decentralized apps and tokens. This chain was the first to implement this feature, allowing developers to deploy their decentralized apps without having to build a blockchain from the ground up.
On CoinMarketCap, Ethereum is ranked as the second coin with the highest market cap, coming after Bitcoin, the foremost crypto. It has a market cap of $193,083,006,139 and a market dominance of 19.2%.
The news of the Merge has continued to pique the community’s interest due to its prominence.
A school of thought holds that a Merge is a welcome event because it is expected to lower transaction costs and increase community adoption.
While the effects cannot be known for certain until the Merge occurs, another school of thought believes that the event should not take place.
This article analyzes stakeholders that will be positively or negatively impacted by Ethereum’s transition from the Proof-of-Work (PoW) to the Proof-of-Stake (PoS) consensus mechanism. It also discusses the definition of the Ethereum Merge and what to expect.
What is the Ethereum Merge?
Since its inception, Ethereum has relied on a Proof-of-Work consensus mechanism. Miners in a PoW chain are given the ability to create new blocks and validate transactions.
A complex mathematical puzzle is set up to select the miner who will carry out this task, and the first person to solve it will be able to verify the transactions.
Solving this mathematical puzzle requires a lot of energy, which is why mining is an energy-intensive process.
Once a transaction has been verified and added to the blockchain by a miner, it becomes immutable, which means it cannot be changed. The miners are subsequently compensated for their efforts.
The Merge marks the union of the Beacon Chain, the new Ethereum consensus layer, and the existing Proof of Work consensus mechanism.
When this occurs, “the Beacon Chain is in charge of maintaining validator information, rewarding good validators, and reducing the ETH of poor validators. It also (at random) appoints a validator committee, which votes to include or discard blocks recommended by the validators and monitors their performance. In a nutshell, the Beacon Chain implements the principles of the Proof-of-Stake (PoS) consensus mechanism. ”
The completion of this phase marks the official transition of the network from PoW to PoS. Because this is an automated process, Ethereum users are not required to do anything during this phase.
The sharding element is expected to be incorporated into the new blockchain following the Merge to ensure its scalability. Instead of a single network, transactions will be verified across multiple independent chains with sharding.
After the Merge, Ethereum 2.0 will be born, and the crypto community expects it to address the issues that plagued Ethereum 1.0, such as high transaction costs, congestion, high computing power, and energy issues.
Who Benefits From The Merge?
The Merge is being embraced by a large percentage of the crypto community because of its potential benefits. It is expected that the Merge may lead to lower transaction costs, faster transaction speeds, scalability, massive adoption of the blockchain, and reduced energy consumption. Some of the stakeholders who will benefit from the Merge are listed below.
Developers
In Ethereum 1.0, network congestion resulted in high transaction costs for everyone using the chain, from developers deploying their smart contracts into the network to average users.
Depending on the time and congestion level of the network at the time, developers may have to spend thousands of dollars to deploy their smart contract onto the network. Transaction fees are expected to be reduced as a result of the Merge.
Ethereum
The Merge could help the Ethereum blockchain reclaim its rightful place among blockchains. As a result of the high gas prices, other chains such as Solana, Algorand, etc. emerged. These chains typically offer low-cost gas fees to network users.
This has prompted developers, traders, and ordinary users who do not want to deal with rising gas prices to seek refuge in the alternative chains available. Developers are being forced to build their decentralized apps on more efficient chains.
By adopting a Proof-of-Stake consensus mechanism and incorporating sharding elements into Ethereum, the network can maintain its competitive advantage, which includes the first mover advantage.
Users
Ethereum is the home of cutting-edge decentralized apps in the DeFi, NFT, DAO, GameFi, and NFTFi sectors. When using Ethereum 1.0, users such as traders, investors, and those conducting regular transactions experience higher gas fees.
For example, depending on the level of congestion in a given period, an individual may be required to pay hundreds or even thousands of dollars to mint an NFT on Ethereum.
The network’s high gas fees can significantly reduce the profits from a DeFi transaction.
Users will benefit greatly if the Merge and the incorporation of shards reduce transaction fees.
Crypto Community
The cryptocurrency community will benefit in various ways, including an influx of new users. The crypto community has extensively discussed the massive adoption of the innovations being developed. Developers want their decentralized apps to be used by both new and experienced crypto enthusiasts. The Merge is expected to convince more people to embrace this technology for various reasons.
For example, PoW blockchains such as Ethereum have been criticized for being not environmentally friendly due to their high computing power consumption. The transition from PoW to PoS, which will take place at the Merge, is expected to improve Ethereum’s image and increase its adoption in both the decentralized and traditional worlds.
Who Loses Out From The Merge?
Many stakeholders benefit greatly from the current status quo of high gas fees and congestion issues in Ethereum 1.0.
The decision to organize the Merge to transition the network from PoW to PoS may not be advantageous to them.
This section identifies some stakeholders who may suffer as a result of the Merge.
Competitors
Many newer blockchains rose to prominence as a result of Ethereum’s scalability issues. For example, Solana has been dubbed the “Ethereum Killer” because its features are expected to reduce the demand for Ethereum.
Several developers have ported their decentralized apps to other chains because of the high gas fees and scalability issues with Ethereum. Because of these concerns, some teams incorporate multichain functionality into their decentralized apps.
If the Merge and incorporation of shards into Ethereum results in lower gas fees, several of Ethereum’s competitors will suffer.
Miners
Though the high gas fees may be detrimental to developers and users, a subset of people who benefit from them is known as miners.
In the Proof-of-Work consensus mechanisms, miners verify transactions and create blocks. As compensation, they usually split the proceeds from transactions or gas fees.
The Merge has enraged some miners to the point where a prominent Chinese Ethereum miner, Chandler Guo, has stated that if Ethereum continues with the Merge, he intends to develop a parallel network.
Guo has stated that he intends to build a parallel network based on the old Ethereum network to ensure that miners can continue to mine coins with their existing equipment.
This is not Guo’s first time siding with a fork of Ethereum. In 2016, the prominent miner backed Ethereum Classic. He quoted a tweet stating this and affirming his plan to create another fork of Ethereum once the Merge occurs, “i fork Ethereum once，i will fork it again!”
The name of the impending fork is EthPOW. According to Guo’s tweet, “ethpow will coming soon.”
The concept of EthPOW has spread throughout the crypto community, but no one knows if it will materialize or be as successful as Ethereum.
In Conclusion,
- The Merge marks the union of the Beacon Chain, the new Ethereum consensus layer, and the existing Proof of Work consensus mechanism.
- Following the Merge, Ethereum will become a Proof-of-Stake network.
- Transaction fees are expected to decrease as a result of the Merge.
- The Merge is expected to convince more people to embrace this technology for various reasons.
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