October 7, 2022

This post was originally published on Ankr

We’re on the precipice of a fundamental shift in how Ethereum operates. If you’re going only to understand one idea about the merge, it’s that Ethereum is moving from Proof of Work (PoW) to Proof of Stake (PoS), but what does that mean?

Post-merge, the network will validate blocks differently — through staking instead of mining. The Ethereum Foundation writes:

“Proof-of-Stake uses validators instead of miners. Validators perform the same function as miners, except that instead of expending their assets up-front as energy expenditure, they stake ETH as collateral against dishonest behavior. This staked ETH will get destroyed if the validator misbehaves, with more severe penalties for more nefarious actions. Slashing incentivizes active and honest participation in securing the network without requiring large energy expenditure.”

It’s More Environmentally Friendly

Large mega-computers are required to verify blocks in PoW blockchains like bitcoin (and, for a bit longer, Ethereum). While on some PoS chains, even someone with enough bandwidth on their laptop can become a validator. The second-order effect of this is a hugely decreased energy consumption.

To put it in comparison, POW currently has an equivalent energy consumption as the entire country of Finland in a given year.

Source: Ethereum.org/en/energy-consumption/

This graph from Ethereum.org shows the yearly power in teraWatts per year (TWh/yr). With Proof of Work, Ethereum used 112 TWh/yr, and after the merge, it will use a mere 0.01 TWh/yr. Less than Netflix, Gaming, Paypal, or Youtube on their own. With this switch, Ethereum will not only be 99% more energy efficient, but it will also be more economically secure in multiple ways.

PoS = Greater Decentralization

The switch to Proof of Stake will make validating much more accessible to a broader range of people and organizations. With staking, more people will contribute to the security of the blockchain, there will be more nodes, and the network will become decentralized.

Out with the days of having to pay for expensive mining equipment and in with the days of setting up a validator node with increasingly simplified operations. Since Ethereum is the second largest blockchain in the world, there’s a lot more traffic on the network than current PoS chains already in existence. Whereas these other chains have anywhere from 100–1,000 nodes, Ethereum currently has over 400,000 validator nodes and counting. Each node participates in network security, meaning 400,000 different computers are running around the clock to verify transaction. If this isn’t greater economic security, I don’t know what is.

Lower Gas Fees & Enhanced Scalability

Most importantly, everyone’s favorite change to Ethereum with the merge is that gas fees will become significantly less expensive. The chain will handle a factor of 10,000x more transactions per second thanks to improvements such as shard chains. More specifically, Ethereum will increase network transaction speeds from ~ t10 transactions/second (TPS) to a whopping 100,000 TPS. And if this wasn’t a fast enough increase, the merge sets the foundations for the network to scale to 1M TPS within the next couple of years.

All this will reduce gas fees to cents on the dollar, making Ethereum a more viable blockchain for the average crypto newbie.

“Fixing The Rocket Midflight”

Ethereum already has a huge market cap, and it’s not an easy task to switch over a network with multiple billions in TVL to Proof of Stake. In addition, Ethereum currently verifies hundreds of thousands of blocks daily. The last thing that the crypto ecosystem wants is to have to clean up millions in lost assets due to a bug in the code before the merge. The extensive network traffic is why the merge has been a multi-year-long development process. A good analogy we can use is fixing a rocket mid-flight.

The rocket took off years ago and is long out of orbit, but now we need to change the engine. So all the preparation is aimed at making the flight go smoothly, so the passengers won’t even recognize when the engine switch occurs.

We can imagine that a combustion engine(PoW) currently powers the network, but we’re almost out of engine life. Now, we want to change the engine to run on solar. Therefore, for the merge to go smoothly, we must take every preparatory measure needed to ensure nothing catastrophic occurs due to the change. In blockchain terms, this has meant that Ethereum developers have been releasing testnet merge after testnet merge to find bugs that could disrupt the smooth transition.

Conclusion

The Ethereum merge has been a long time in the making. I, personally, can’t wait to see what gets built when gas fees are no longer a massive barrier to entry to the development and utilization of the Ethereum blockchain.

Nothing will change except the speed and price of transactions on the user’s end. But you can rest assured that post-merge many exciting events are in store for the crypto ecosystem writ large. See you on the other side.

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A Beginner’s Guide to the ETH Merge was originally published in Ankr on Medium, where people are continuing the conversation by highlighting and responding to this story.

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