The Ethereum merge switches the consensus algorithm from proof of work to proof of stake. With this merger, ETH holders will act as validators rather than using energy-guzzling computers to conduct the work, making the blockchain more effective and lowering its carbon footprint.
The merge is merely a component of the complete upgrading. We will go over Ethereum merge in detail.
What is Ethereum merge?
Ethereum primarily used a proof-of-work(PoW) consensus algorithm. This approach prevents anyone from interfering with the network by requiring specialized computers to answer arbitrary mathematical problems. PoW is tremendously efficient, but it also consumes a lot of energy.
Ethereum still uses a proof-of-work (PoS) mechanism that runs concurrently with it on the Beacon chain at the moment. Without the usage of smart contract capabilities, this chain is in charge of producing new blocks, validating them, and paying validators with ETH for maintaining the security of the network.
The mainnet will allow the new network to include smart contracts into the proof-of-stake system and contains the whole history and present state of ethereum. This is to guarantee a smooth transition for all ETH holders and users.
These two chains will eventually merge. Once completed, the merge will successfully finish the proof-of-work mechanism and begin the proof-of-stake mechanism.
What occurs when ethereum merges?
With the ethereum merge, the blockchain's proof of work mechanism came to an end and a new proof of stake consensus layer took its place. The merger intends to drastically lower the network's energy usage while allowing ethereum to scale even further.
The Beacon chain has not been handling transactions on the mainnet because it is only employed for testnet merges. Instead, it has been deciding on active validators and their account balances to agree to its status.
The Beacon Chain will be the source of all network data following The Merge, including execution layer transactions and account balances. The Merge brings us one step nearer to realizing the entire scope of the Ethereum concept. Ethereum claims that after The Merge is finished, a cleanup upgrade will be implemented to address other features. This upgrade will happen very soon.
Developers are limiting extra features that can impede a merge to guarantee success. This means that once the merge is complete, those of you who are waiting to withdraw staked ETH will have to wait a little longer. The upgrade's Shard chain component should not be overlooked either. The shard chain was initially intended to be developed by the ethereum developers before the merge to address the present scalability issue. The attention has switched to replacing proof of work with proof of stake due to the strong demand for layer 2 scaling solutions.
Advantages of Ethereum merge
The merge increases user participation on the ethereum network by rewarding staked ETH.
The following significant advancement for ethereum is slated to be sharding, which can accelerate transactions and reduce fees. Ethereum's new proof of stake consensus process will use less energy than Bitcoin's proof of work model.
What should investors need to know regarding the merge concept?
- Although it is impossible to predict exactly how the merge will work out in the long term, investors might wish to take the following things into account.
- According to the network's website, if you had ETH before the integration, there is nothing you have to do.
- Scammers claiming you need to upgrade or switch to a new token like "ETH2" are to be avoided. There isn't such a token.
- Because mining awards, which are greater than staking rewards, are no longer given out, the rate at which new ETH tokens reach the market has decreased by around 90%.
- In general, Ethereum has struggled with transaction costs that are too high and congestion. Neither of these problems was instantly resolved by the merger.
- The network can support more transactions due to sharding, which divides the validation work into smaller portions. This might result in more users connecting to the Ethereum network.
- After the integration, the network will advance due to stakeholder wealth rather than processing capacity. This would be a departure from the decentralized ethos that so many cryptocurrency supporters admire and would allow the largest owners to have excessive influence inside the Ethereum ecosystem including custodians.
How will the ethereum merge influence your crypto investments?
According to some experts, the update would help ethereum expand again after new blockchain initiatives reduced its market share during the previous six months.
"I do trust that we will see a positive hope in the markets post-merge" Hashoshi (YouTuber) recently said. This is due to the possibility that the ethereum merging will speed up processing, provide higher security and stability, and reduce Ethereum's energy consumption by at least 98%.
According to Armando Aguilar, an independent cryptocurrency expert and former digital asset strategist at Fundstrat global advisors, related cryptocurrencies may see a price increase as a result of this upgrade.
"The good vibe momentum will be for those projects that are creating on top of ethereum such as polygon, arbitral among many others". Armando Aguilar said.
In the meantime, the ethereum ecosystem may exert extra pressure on rival protocols like Solana, and Polkadot because the upgrade will enable the network to scale, lower transaction costs, and encourage more people to embrace blockchain technology.
Why is ethereum merge important for Web3?
This period is significant for Web3 since the switch to proof-of-stake (PoS) addresses climate concerns and, presumably, encourages more layer-1s to do the same, lowering the common barrier to entry for widespread adoption of Web3. This achievement alone is cause for celebration.
Thus, the importance of Ethereum merge has the potential to benefit the crypto investors and it is used in the web3 development projects and acts as a protocol for the network activities. It lowers the common barrier to the entry of web3 adaption.