Ethereum merge - All you need to know
So, a rather significant event in the crypto world is expected soon. It has been talked about for a long time but has been continuously postponed for several years. Of course, we are talking about the Ethereum merge (or merger). Well, let's break down what the Ethereum merge is, when it'll happen, and what consequences to expect.
What is the Ethereum merge?
Decentralised blockchains require a consensus mechanism, i.e. a concept for validating transactions between participants. The most common algorithms right now are Proof-of-Work (PoW) and Proof-of-Stake (PoS). They're based on different approaches, but the core is the same: The blockchain is made operational by a distributed network of independent validators (called nodes) that input information into a single database of completed transactions.
Although PoW is the most time-tested consensus algorithm, it has some serious drawbacks and is now considered by many to be obsolete. The most significant advantages of PoS over PoW are:
- PoS-based blockchains consume much less energy.
- There's no need to buy and maintain expensive mining equipment to become a validator on a PoS-based network.
- Although it's easier to perform a 51% attack on PoS blockchains, it'll only result in losses. Since the attacker needs to control 51% of all cryptocurrency in this blockchain to execute it, they would suffer the most from a successful attack.
Ethereum merge explanation
The Ethereum merge is a major update to the Ethereum network that implements the network's transition from the PoW to PoS.
The merge began with the launch of a network called the Beacon Chain, which is separate from the Ethereum mainnet. It's where a dedicated smart contract for ETH staking was deployed. The upcoming update is essentially a merge of Beacon Chain and the current Ethereum mainnet.
When is the Ethereum merge?
The use of the PoS consensus algorithm on the Ethereum network has been planned from the outset, according to Vitalik Buterin, the creator of Ethereum. However, as this algorithm was relatively new and poorly tested, it was decided to initially use PoW and later switch to PoS.
The transition to the PoS algorithm has been repeatedly postponed for various reasons. But despite these postponements, preparations for the transition to the PoS algorithm began in earnest in 2020. This transition (the so-called upgrade to Ethereum 2.0) was divided into 3 stages:
- Launch of the Beacon Chain testnet. This phase started in December 2020.
- The merge. The procedure for combining the Ethereum mainnet and the Beacon Chain to become the new Ethereum mainnet. This phase is scheduled for September 2022. On 8 June 2022, the development team successfully conducted the first public test of the Ethereum merge in the Ropsten testnet.
- Launch of the shards. After the merge, the Ethereum 2.0 network will initially have a single blockchain. But it'll be divided into separate segments - shards. The Beacon Chain will coordinate them, allowing the platform to scale almost infinitely. This phase is planned for the end of 2022.
Ethereum merge date
The merge will consist of two phases. The first will be an update called Bellatrix on 6 September. If successful, the Paris update will be launched when the system reaches the required Terminal Total Difficulty (cumulative network complexity up to the requested block).
Achieving the necessary conditions to start the Paris upgrade depends on the network's hashing speed and could occur within a 10-day period, starting on 10 September.
Benefits after the update
The transition to the PoS algorithm will have some positive consequences for the Ethereum network and its participants:
- The power consumption will drop dramatically.
- Decentralisation of the network will presumably be enhanced by lowering the entry threshold for validators compared to traditional mining.
- The merge will pave the way for further updates aimed at making the Ethereum network more scalable.
- ETH issuance will decrease, causing a reduction in inflationary pressure on its price.
- ETH investors will have an additional option to increase their earnings through staking.
Drawbacks of the Ethereum merge
Despite the obvious advantages of switching to the PoS algorithm, it also has some disadvantages:
- Mining on the Ethereum network will cease to exist, which of course, is bad news for Ethereum miners. They'll have to switch to mining other coins, such as Ethereum Classic (ETC). It's also possible that a fork of Ethereum using the PoW algorithm will appear after the merge. It's spearheaded by miners and mining equipment manufacturers.
- There are concerns that the move to the PoS algorithm won't reduce, but rather increase, the centralisation of the network, as it'll make it easier for the big players to participate in staking. This will make the Ethereum network more vulnerable to control by regulators, putting pressure on organisations that own large amounts of ETH.
Ethereum price prediction after the merge
It's impossible to predict reliably how exactly ETH's price will change after the merger, as it's affected by many different factors. Many experts believe that the merger is already priced in. However, it must be taken into account that the issuance of new coins will be reduced with the transition to PoS. Moreover, stakers will be forced to lock their ETH to become validators on the network. This will be a factor pushing ETH's price up.
The impact of Ethereum merge on the cryptocurrency market
While it's extremely difficult to accurately predict the influence of the Ethereum merger on the crypto market as a whole, there's no doubt that such a large-scale event will have an impact.
Bitcoin and Ethereum merge
In the short term, the Ethereum merger is unlikely to have a noticeable impact on Bitcoin. In the long term, however, Ethereum's subsequent increase in scalability and bandwidth could lead to an increase in its popularity, including as a means of payment. This, in turn, will cause Ethereum's dominance to increase at the expense of Bitcoin.
Dogecoin and Ethereum merge
As a meme coin with a community of loyal supporters, Dogecoin is unlikely to be heavily influenced by the Ethereum merge. However, given that further upgrades to the Ethereum network will be aimed at increasing network bandwidth, ETH could win over some of those users who prefer DOGE because of fast and cheap transactions.
Alt5: Dogecoin tweet about merge
Shiba Inu and Ethereum merge
As a meme coin and a speculative asset with a lack of utility, Shiba Inu lives by its own laws. It's unlikely that the Ethereum merge will have a noticeable impact on it.