Ethereum: The Merge, Proof of Stake, Ethereum Summer?
"The Merge" just around the corner and what you need to know.
Introduction
Nothing in this universe is constant. All things change, decaying, discarding, and evolving from the old to the new, new to old. This summer, “The Merge” will bring the inevitable change that will evolve Ethereum into the state-of-the-art blockchain it was destined to be. Since its inception in 2014, Ethereum has been the number one blockchain with the highest TVL, developers, and protocols. Other blockchains have tried to take Ethereum’s throne, but none come close to the dominance that Ethereum possesses in the market. Ethereum has stood the test of time and overcame many challenges (i.e., Ethereum Classic) to get to this point. With another powerful upgrade on its way, Ethereum will be one step closer to solving the blockchain “Trilemma” problem that the entire ecosystem faces.
Ethereum’s TVL on DefiLlama
The perfect blockchain is composed of decentralization, scalability, and security, all operating in harmony. No blockchain has achieved this yet. Currently, blockchains face this “Trilemma” problem and have been tackling this problem for quite some time. Security usually holds back scalability and decentralization, but security becomes an issue when a network offers high scalability. Right now, Ethereum faces the problem with scalability. It is currently capable of 30 transactions per second which leads to long queues and high costs to use the blockchain. With “The Merge” on the horizon, the trilemma of decentralization, scalability, and security that all blockchains face will be one step closer to being solved.
Ethereum Mainnet “The Merge”
“The Merge” will transform Ethereum’s POW “Proof of Work” into a new POS “Proof of Stake” consensus algorithm. It will merge the current Beacon Chain, an independent network currently running on the “Proof of Stake” consensus layer, into the current Ethereum “Proof of Work” mainnet. Beacon Chain was launched in December 2020 during Ethereum’s Serenity upgrade and had been running smoothly since. Over 300k validators and $28 billion were deposited on the Beacon Chain. Battle tested, audited, and reviewed. It has passed all the requirements and is ready to be merged.
“The Merge” will be the phase 1, and for phase 2, Ethereum will scale through a method called Sharding. Sharding will support distributing data across numerous machines on the “Proof of Stake” network, thus achieving its scalability.
“The Merge” will transition into “Proof of Stake” and allow a more energy-efficient and secured consensus mechanism. For “Proof of Work” to run, it currently needs expensive hardware, massive energy, and high technical skills to manage a mining farm. It is usually for serious operations with big players. Most of the fees generated from solving blocks are sent to these big players or mining companies. It is a reward for securing and keeping the network system running. Ethereum transitioning to “Proof of Stake” allows the network to be 99% more energy efficient than its current system, “Proof of Work”. It is a gigantic step for the crypto community since crypto is constantly labeled as energy vampires. With “Proof of Stake,” energy efficiency will explode, a massive win for blockchain technology.
With “Proof of Stake,” many regular investors like you and I can stake our ETH and partake in securing the network while earning fees doing so. “Proof of Stake” allows anyone with 32 Ethereum to stake and become a validator for the Ethereum network. Anyone with a laptop can stake their Eth and become a validator. You can also stake anywhere, from the comforts of your laptop or pc. I know, I know, the cost of 32 Ethereum is hefty, but some protocols will allow a lower amount of Eth to stake (i.e., Rocket Pool). If you are someone that has seven figures or more of Eth, you will need more hardware to run the nodes.
L2s
Ethereum's main net merge is not the only thing to celebrate; Ethereum’s layer 2 has been relentlessly building. Layer 2s such as Arbitrum, Optimism, Starkware, zkSync, and other notables have made noise around the crypto community of late. They are ready to handle and support most of the transactions from Eth main net. Layer 2s will be another factor in increasing Ethereum’s scalability issues. Layer 2s will handle the majority of the transactions with its high throughput (transaction speed) and also having the security of Mainnet. During the peak of the 2020-2021 bull run, transactions on main net cost hundreds of dollars, sometimes thousands. Layer 2s offers the ability to scale for mass adoption, and I believe that it could be the spark to onboard millions of new users into Web 3.
Even with the current market turmoil, there is a silver lining and a little bit of hopium for investors. Perhaps “The Merge” is something to celebrate as it marks a monumental accomplishment for the entire crypto community. Maybe it could be the catalyst that brings in new investors, capital, and ecstatic enthusiasm for the market.
Note: None of this financial advice. It is purely for entertainment purposes only.