The “Merge” is perhaps the most significant upgrade in Ethereum’s history. Extensive testing and correction of defects were conducted to guarantee a secure transition to the Proof-of-Stake consensus mechanism.
Ethereum has long been hampered by speed and processing cost constraints. As a Proof-of-Work blockchain, it only processes 30 transactions per second, but it aims to handle up to 100,000 transactions per second once it transitions to Proof-of-Stake.
The Merge will combine the traditional Ethereum Mainnet blockchain (ETH1) and the new Beacon Chain (ETH2) into a single blockchain.
The delay in the update is due to laborious and meticulous implementations consolidating the network through continuous, incremental upgrades and forks across several core elements: the Beacon Chain, the Merge Chain, and the shard chains. Each of these depends on the others to achieve Ethereum’s primary objective of increased scalability, security, and sustainability.
What exactly is Proof-of-Stake and why is it so important?
Proof-of-Stake is a consensus technique for validating new bitcoin transactions. Because blockchains lack centralized regulatory authority, Proof-of-Stake is a technique for ensuring the validity of data stored on the network. It aids in determining who will be chosen and compensated with specific crypto tokens for correctly validating the new data and not deceiving the system.
Proof-of-Stake involves users known as “validators” locking up specific quantities of bitcoin or any other crypto tokens, which is their stake in a smart contract on the blockchain. In exchange, they are given the opportunity to verify new transactions and earn a reward. However, if they inappropriately authenticate poor or false data, they may be penalized and lose some or all of their share.
What Is Staking?
Staking is the agreement to lock up a certain quantity of crypto in return for the opportunity to validate new blocks of data to be added to a blockchain. These validators, also known as “stakers,” invest their cryptocurrency in a smart contract stored on the blockchain.
The algorithm chooses validators depending on how much crypto they’ve staked to validate each new block of data. The more an individual stakes, the higher the probability of being chosen to undertake the task. When the validator’s cleared data is uploaded to the blockchain, they are rewarded with newly created cryptocurrency.
The role of the Beacon Chain in the Merge
The Merge formally establishes the Beacon Chain as the new consensus layer, “merging” it with the existing mainnet execution layer. After the Merge, validators will be appointed to secure the Ethereum Mainnet, and Proof-of-Work mining will no longer be a viable method of block generation.
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.
Phase 0 has exposed the Ethereum ecosystem to the Proof-of-Stake (PoS) consensus mechanism. Users can now stake 32 ETH and register on the network as validators. They would then be in charge of validating transactions, grouping them into blocks, and publishing them to the blockchain.
The Beacon chain is critical in preparing Ethereum for the upcoming multi-phase shard chain update, which will increase the network’s ability to grow and store data. Although the initial intention was to focus on shard chains before the Merge, this changed due to the rapid rise of Layer 2 scaling solutions such as Starkware, Optimism, and Arbitrum. As a result, the majority of the Ethereum community considered the Merge and the shift to Proof-of-Stake to be more important.
Validators who conduct their tasks properly receive a specified percentage of their staked ETH. However, they do not earn any incentives if they process invalid transactions, generate illegal blocks, or are offline for an extended period of time. Instead, a portion of their staked ETH gets reduced. This prevents malicious individuals from exploiting the system by initiating harmful transactions.
Timeline of Ethereum updates and forks:
June 2021: London Testnet launch– One of the modifications affects how transaction fees are computed, with the goal of flattening them out and making them less volatile. EIP-1559 was intended to accelerate and incentivize the mining of its native currency, ether (ETH). It is notable because it introduced the burning of base fees in transactions and significantly altered Ethereum’s monetary policy. The London Mainnet was launched in August 2021.
October 2021: Altair upgrade– Altair is the first update conducted on the Beacon Chain to address severe network concerns. The upgrade would implement the “punitive parameters” proposed in EIP-2982 and provide blockchain client support. The update was scheduled for October 27 at 10:56:23 am UTC.
December 2021: Kintsugi Merge testnet– The Kintsugi testnet allows the community to test the post-merge Ethereum and highlight any flaws. After incorporating feedback into the client software and requirements, a final round of testnets will be released. In parallel to this, testing activities will continue to increase.
March 2022: Kiln Merge Testnet– The Kiln testnet launched concurrently with the Beacon chain as a Proof-of-Work blockchain and merged on March 15, 2022, transitioning to a complete Proof-of-Stake system, allowing developers, node operators, and stakers to test the functionality of their applications before the Merge.
The Kiln testnet simulates the fusion of the Ethereum mainnet and the beacon chain, kicking off the entire network consensus shift from Proof-of-Work to Proof-of-Stake.
Q2 2022: The Merge– According to Ethereum’s official website, the following changes will accompany the Merge:
- Ethereum Mainnet will be combined with the Beacon Chain proof-of-stake mechanism.
- This will be the final step in Ethereum’s transition from Proof-of-Work to Proof-of-Stake consensus mechanism.
- This lays the groundwork for future scalability enhancements such as sharding.
- The Merge will cut Ethereum’s energy consumption by 99.95%.
What happens after the Merge?
After the Merge, validators will be appointed to protect the Ethereum mainnet, and Proof-of-Work mining will cease to be a viable method of block generation. Blocks will instead be created by validator nodes that have staked ether in exchange for the ability to participate in consensus.
- The Merge signifies the union of Ethereum’s existing execution layer with its new proof-of-stake consensus layer, the Beacon Chain. Founded on December 1, 2020, and has since operated as a distinct blockchain to Mainnet, running concurrently.
- The Merge eliminated the need for the energy-intensive Proof-of-Work consensus mechanism in favour of securing the network with staked ETH using the more scalable, secure, and sustainable Proof-of-Stake consensus.
- The Beacon Chain is the redesigned network coordination mechanism responsible for producing new blocks, ensuring that those new blocks are legitimate and rewarding validators with ETH for ensuring that the network is secure.
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