Ethereum’s long-awaited upgrade known as The Merge is set to be completed tomorrow, Sept. 15 at roughly 5 am UTC.
The Merge is one of the biggest technological changes in the blockchain space. It has been in the works, in a way, since Ethereum first went live in 2015. When it takes place, it will move Ethereum to a proof-of-stake blockchain, reducing its environmental impact and changing some of its tokenomics.
Here’s what you need to know.
Understanding The Merge
The main purpose of The Merge is to transition Ethereum’s consensus mechanism from a proof-of-work to a proof-of-stake model.
Proof of work means the network is secured by miners, using electricity in exchange for block issuance and a portion of transaction fees. Proof of stake secures the network through validators who stake ether in order to validate the network.
To prepare for this transition, Ethereum developers launched the Beacon Chain in December 2020. This chain functions as a proof-of-stake network running parallel to Ethereum and allows users to stake ether — which means there is enough ether staked on the network ahead of the switch. The Beacon Chain has about 13.4 million ether staked across thousands of validator nodes.
When The Merge happens, it will bring the current blockchain over and merge it with the proof-of-stake system that’s running in parallel.
The idea of changing a car’s engine from gas to electric, while it's in motion, has become a popular analogy when explaining the Merge. This is in essence what the Ethereum core developers hope to do — changing the network's mechanics without any downtime.
What are the key timings?
The successful Bellatrix upgrade on September 6 was the first part of the Merge — it prepared the network for the main upgrade. Tomorrow the Paris upgrade will bring the process to completion.
The Merge will be triggered once the network reaches Terminal Total Difficulty (TTD), at this point Ethereum will move from proof of work to proof of stake. The figure for the TTD is 58,750,000,000,000,000,000,000 and the current estimate for when The Merge will happen can be tracked here.
What will be the impact of The Merge?
The Merge will reduce the environmental impact of Ethereum and reduce the issuance of new ether tokens.
Proof of work draws criticism for its negative impact on the climate through excess electricity usage, whereas proof of stake requires less energy consumption as mining becomes obsolete following The Merge. It will reduce the network’s energy consumption by 99.95%, according to the Ethereum Foundation.
As a result of the transition there will be fewer new ether tokens issued on a yearly basis. According to estimates, the rate of new ether creation will drop nearly 90% after the upgrade, due to the fact validator rewards will be significantly smaller than the miner rewards issued on proof of work.
If you account for the amount of ether that gets burned within the transaction fee process, then the network’s net issuance will — at current activity — drop to near zero. If activity rises, the network could even become deflationary, where less ether is produced each year than is burned.
But The Merge won’t fix all of Ethereum’s woes. Notably, it won't increase the network's speed, nor will it lower transaction fees on the network.
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