ETH 2.0: Everything You Need To Know About The Ethereum Merge
The long-awaited transition from proof-of-work to proof-of-stake for Ethereum is slated for mid-September, but what does this mean for you?
You’ve likely heard a lot about Ethereum’s big Merge lately. It sounds exciting for sure, but what does it mean? Why is the Merge happening and how will it affect you?
The Merge will see Ethereum’s proof-of-work (PoW) system move to proof-of-stake (PoS), cutting emissions by as much as 99%. After the change, mining Ethereum will no longer be viable. Instead, transactions will be verified by the machines of ETH holders, called validators.
Proof-of-Stake vs. Proof-of-Work
In a proof-of-work system, power-hungry machines guess the 64-character hash required to push a transaction to the blockchain. If a machine finds the correct solution, it is broadcast to other machines and consensus is achieved across the network, earning that machine a small reward. This is slow, power-intensive and inefficient.
Under proof-of-stake, machine owners prove that they’ve staked a certain amount of cryptocurrency (32 ETH for Ethereum 2.0) to perform blockchain transactions, receiving rewards for the transactions they perform. This is much quicker, requires much less computing power and is far more energy efficient.
Proof-of-stake systems differ, but ETH 2.0 will rely on shards for consensus. Validators will add transactions to a shard, with a requirement of at least 128 validators in agreement. Once this number is reached, the shard is proposed to be added to the blockchain. If two-thirds of the total validator pool agree that the transactions are valid, the shard is added to the Ethereum blockchain.
Why Is This A Big Deal?
As the leading NFT blockchain, and no. 2 cryptocurrency overall, Ethereum has a major impact on the blockchain world. It will become the leading proof-of-stake chain, removing the need for the energy-guzzling hardware farms the rule chains such as Bitcoin.
Projects built on Ethereum – or any of its Layer 2 solutions – will reap the benefits of this change, enjoying better scalability, faster transaction speeds and higher efficiency. This will purportedly reduce gas fees – a major hurdle for many ETH users.
The current iteration of Ethereum is comparatively slow and requires users to pay hefty gas fees to perform transactions. Over the years, we’ve seen transaction pileups cause major issues, with gas fees reaching as high as $196 in May of this year.
Proof-of-work will ensure that during peak operation, we shouldn’t see these same issues.
That sure sounds great, but when will all of this actually happen?
The Merge Is Almost Here
Ethereum 2.0 will be introduced in three phases.
- Phase 0: The Beacon Chain
- Phase 1: The Merge
- Phase 2: Sharding
The Beacon Chain was established on December 1, 2020. The Merge is expected to deploy on the week of September 19, 2022. Sometime in 2023 or 2024, Ethereum Sharding will be introduced.
Right now, we’re in Phase 2, with the Goerli and Prater testnets getting ready for deployment (as mentioned on the Ethereum Foundation blog). Taking place between August 6-12, this is the third and final network test before the Merge. If all goes according to plan, the official Ethereum 2.0 rollout will occur in mid-September.
How Does This Affect Layer 2 Rollups?
Using existing Layer 2 networks (such as Polygon and Immutable X), blockchain games can “roll up” ETH transactions by sending them to a side-chain. This reduces the strain on the main Ethereum network whilst minimising the data required to execute a transaction, speeding up the process.
ETH 2.0 will enhance these Rollups, helping Layer 2 solutions conduct transactions even quicker. If you play games or use dApps that run on Ethereum, you should notice some big performance improvements.
Will This Affect My Holdings?
No – your Ethereum and Polygon, Immutable X and other Layer 2 holdings will not be affected, and you don’t need to do anything to prepare. It’s not a different token, it’s just a platform upgrade to improve performance and scalability.
Will this impact the value of ETH and the NFTs on it? Time will tell!
One thing is certain – we’ll find out real soon how these changes influence the market.
In my opinion, as we get closer to the merge, we’re likely to see the price of ETH increase as the hype grows.
Many have speculated, with recent market trends, if the bull market is over. The launch of ETH 2.0 will be the real test.