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The Merge: All you need to know

the merge

Introduction

If you’re remotely plugged into the crypto space, you probably heard through the summer about the biggest crypto event of the year: the Merge. Opinions were divided, so we could see two camps: the firm believers in a successful event, and the skeptics – both impatiently waiting for the Merge to happen. 

But what was the Merge? Why was it so important? What does it mean for the crypto space and what’s the next step? We cover everything in this article. 

 

About Ethereum

It’s important to start with a quick presentation of the Ethereum blockchain. Ethereum is what we’d call “the next-generation web”: a decentralized blockchain network, powered by Ether (ETH), its token. Ethereum allows its users to make transactions, trade, store NFTs, play games and many more. It is the embodiment of web3: an inclusive, trustless network. 

More than that, it supports dApps (decentralized applications), DeFi (decentralized finance) and DEX (decentralized exchanges). To be able to function, Ethereum uses a vast network of computers globally, thus avoiding the use of a centralized server. 

Each interaction (for instance the selling or buying of an NFT) is stored on the blockchain. All transactions are verified, and miners are in charge of the process. Miners operate the network, and this method (of miners verifying transactions) is known as proof-of-work (PoW) consensus. The energy consumed by their computer is the proof of the transaction, and the miners receive ETH in return for the power consumed (or work delivered, to put it another way).

The ETH miners receive is sourced from the “gas”: a fee network participants pay for each transaction on the blockchain. So in short it is the users rewarding the miners, a system which ensures network security and continuity. 

Even though this sounds great in terms of transparency and decentralization (because everything is visible and unchangeable on the blockchain – providing the perfect history of Ethereum transactions); energy consumption (in the context of global warming) was one of the largest concerns. This is in addition to the concerns around scalability: the PoW algorithm was inefficient, because of the gas and the time requirements for block validation. 

However, this is now part of the past.

 

About the Merge

The Merge, which happened September 15th 2022, is the name for Ethereum’s transition from PoW to a proof-of-stake (PoS) consensus model, which eliminates the aforementioned mining completely. 

PoS means validators are now responsible for checking the transactions’ legitimacy. To be a validator, they have to stake at least 32 ETH on the network (which serves as a safety measure in case they behave dishonestly). Staking ETH will allow these individuals or organizations to generate and collect new ETH as an incentive for proving the necessary power to validate transactions and secure the Ethereum network.

You may wonder – ok, so they changed their entire algorithm while the network was still running? How was that possible? 

The answer: the beacon chain, a fully independent network which has a PoS consensus layer. Ethereum launched it in December 2020 to run in parallel with the main Ethereum blockchain (mainnet). By keeping both, the team was able to work on the transition without damaging the flow of the platform. They created a bridge between the mainnet and the beacon chain, making the latter secure and capable of accepting deposits.

The Merge, successfully finalized in September, resulted in a 99.95% drop in Ethereum energy consumption, making it the most energy-efficient blockchain network. This move earned them a competitive advantage over other major blockchains, with important ecological, security and economical benefits for the Ethereum ecosystem. Not to mention that blocks are produced every 12 seconds now, meaning the network is 10% faster (previously the average was 13.3 seconds). 

Post-Merge benefits & concerns 

Well, some people are out of a job: the miners. They were forced to move to other blockchains that use PoW as a consensus model, and large-scale companies were forced to change their business model. 

When it comes to NFTs, one of the biggest drawbacks people highlight was the high energy consumption. Since the Merge, this conversation point has been muted. So could the NFT segment now face a new popularity surge? NFTs were already on an upwards trajectory, and the post-Merge era might prove to be very beneficial for all the creators and project leaders. And we’re not talking only about NFTs here, but DAOs, and Metaverse, and DeFi projects – web3 innovation is happening on Ethereum. 

Zooming out, the Merge might attract companies and organizations to use Ethereum, especially because sustainability is a major consideration. This could open up the way to more businesses jumping on the web3 band-wagon, especially after seeing the second-largest blockchain taking environmental concerns so seriously.

However, some may fear that the Merge was a step closer to centralization. This issue was raised by the fact that four entities controlled over 60% of the staked ETH: Lido, Coinbase, Kraken and Binance. Regulatory concerns could present an added issue: centralized services (the last three) are obliged to do whatever authorities impose – and this could mean censoring the blockchain. 

The blockchain community remains split: the believers are excited for the future opened by the successful Merge, whilst the skeptics state that Ethereum moved away from its decentralization principals, and therefore is on the way to losing its independence. Perhaps it’s too soon to offer certain predictions, in a few months we’ll likely have more clarity in terms of how much Ethereum has drifted  away from the core of the blockchains original principle of decentralization. 

Also, there is another point critics address: scalability – meaning Ethereum transactions are still comparatively very expensive (the gas fee didn’t change after the Merge) and high network congestion remains.

Next steps

The Surge, the Verge, the Purge, and the Splurge. 

The Surge is aimed at solving the scalability concern: Ethereum will upgrade from 15-20 transactions per second to 100’000.

The Verge is meant to bring down technological barriers from becoming part of the Ethereum network and support its decentralization. This upgrade will allow users to become validators without having to store extensive amounts of data on their computers.

The Purge will push even further the efforts of simplifying Ethereum, cutting down the amount of space validators need for their hard drive, and dispense nodes from storing history.

Lastly, the Splurge will be simply about “all the other fun stuff”, as Vitalik Buterin, Ethereum co-Founder, mentioned.

Conclusion

As we can see, the Merge was only a step on Ethereum’s ambitious road. Without disregarding any of the concerns it raises, we believe the Merge is opening a door for even more growth in the web3 space: NFTs, Metaverse, DeFi projects, and DAOs will make web3 flourish even more. Or at least, we hope so! 

We also admire the impeccable coordination of the Ethereum team which allowed this smooth transition to happen. We’re looking forward to seeing the full potential of this blockchain network over the coming months! 

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