What the Ethereum Merge ?

 

What the Ethereum Merge Means for Ordinary Users—And What It Doesn’t

• Ethereum's long-awaited move to proof of stake—dubbed "the merge"—is finally happening. 
• A lot is going to change. But a lot is also going to stay the same.

Ethereum merge is here. Based on current estimates, the long-awaited upgrade to the second largest cryptocurrency by market cap is expected to happen tonight.

So, what does this mean for you, the general user or investor? Whether you keep your life savings in assets or just 0.01 ETH, moving from the network's proof-of-work blockchain to proof-of-stake will make things different. But what exactly?

For some time, there have been rumors swirling around that this upgrade will make Ethereum faster and cheaper. But this isn’t true—at least not yet, anyway, according to the Ethereum Foundation and experts who spoke to Decrypt. 

What is the merge?

The merge is Ethereum’s much-publicized move to proof of stake. Right now, the cryptocurrency’s network uses the same consensus network as The merge is Ethereum’s much-publicized move to proof of stake. Right now, the cryptocurrency’s network uses the same consensus network as Bitcoin: proof of work. This highly energy-intensive way of keeping the network secure uses huge amounts of electricity (more than entire countries) in order to process new transactions on the network. 

Proof of stake is different, though. Rather than using miners, validators are needed. Validators can be anyone with at least 32 ETH available to “stake,” or pledge, to the network. Users can also participate with smaller amounts of ETH through staking pools or cryptocurrency exchanges. Today is the day Ethereum makes the move to that consensus mechanism. 

This way of doing things is a solution to proof of work’s energy consumption: the Ethereum Foundation claims it will make the network more than 99% more energy efficient. 

But today’s upgrade does not solve other issues The merge is Ethereum’s much-publicized move to proof of stake. Right now, the cryptocurrency’s network uses the same consensus network as Bitcoin: proof of work. This highly energy-intensive way of keeping the network secure uses huge amounts of electricity (more than entire countries) in order to process new transactions on the network. 

Proof of stake is different, though. Rather than using miners, validators are needed. Validators can be anyone with at least 32 ETH available to “stake,” or pledge, to the network. Users can also participate with smaller amounts of ETH through staking pools or cryptocurrency exchanges. Today is the day Ethereum makes the move to that consensus mechanism. 

This way of doing things is a solution to proof of work’s energy consumption: the Ethereum Foundation claims it will make the network more than 99% more energy efficient. 

But today’s upgrade does not solve other issues with Ethereum’s throughput and capacity (i.e. how many transactions are processed per second.) That, it is hoped, will come later. 

The merge will not make Ethereum faster

Ethereum’s move to a new consensus mechanism will mean a more energy-efficient blockchain, but this doesn’t mean Ethereum transactions will be quicker. 

Why? Because the move to proof of stake will only mean blocks are produced roughly 10% more frequently than they are on proof of work, according to the Ethereum Foundation.  with Ethereum’s throughput and capacity (i.e. how many transactions are processed per second.) That, it is hoped, will come later. 

The merge will not make Ethereum faster

Ethereum’s move to a new consensus mechanism will mean a more energy-efficient blockchain, but this doesn’t mean Ethereum transactions will be quicker. 

Why? Because the move to proof of stake will only mean blocks are produced roughly 10% more frequently than they are on proof of work, according to the Ethereum Foundation. : proof of work. This highly energy-intensive way of keeping the network secure uses huge amounts of electricity (more than entire countries) in order to process new transactions on the network. 

Proof of stake is different, though. Rather than using miners, validators are needed. Validators can be anyone with at least 32 ETH available to “stake,” or pledge, to the network. Users can also participate with smaller amounts of ETH through staking pools or cryptocurrency exchanges. Today is the day Ethereum makes the move to that consensus mechanism. 

This way of doing things is a solution to proof of work’s energy consumption: the Ethereum Foundation claims it will make the network more than 99% more energy efficient. 

But today’s upgrade does not solve other issues with Ethereum’s throughput and capacity (i.e. how many transactions are processed per second.) That, it is hoped, will come later. 

The merge will not make Ethereum faster

Ethereum’s move to a new consensus mechanism will mean a more energy-efficient blockchain, but this doesn’t mean Ethereum transactions will be quicker. 

Why? Because the move to proof of stake will only mean blocks are produced roughly 10% more frequently than they are on proof of work, according to the Ethereum Foundation. 

Fast Ethereum transactions would be nice, of course: just like buying things with a credit card online, it gives you peace of mind when the transaction goes through quickly. But with this cryptocurrency network, things aren’t going to speed up that noticeably just yet. 

“Though some slight changes exist, transaction speed will mostly remain the same on layer 1,” the foundation said. “This is a fairly insignificant change and is unlikely to be noticed by users.”

The merge will not make Ethereum transactions cheaper

Many think that the move to proof of stake will make Ethereum’s notoriously high gas fees, and the costs associated with making transactions, lower. This isn’t true—although it is hoped they will go down with future upgrades.

Lots of applications and cryptocurrencies run on Ethereum’s blockchain. This means that often, to do things with such applications (think decentralized exchanges or Defi lending protocols), you will need some Ethereum—sometimes a lot of Ethereum—to pay for the transaction. 

The network’s notoriously high fees have put some people off using the blockchain altogether, looking to “Ethereum killers” like Solana, Avalanche, or Tezos to mint NFTs. 

Is staking Ethereum on an exchange a good idea? 

As a retail investor, you may have received emails from various exchanges telling you to stake your ETH on the exchange. You may even be doing so already. But is this a good idea? 

Well, it depends who you ask. Ethereum core developer Micah Zoltu told Decrypt absolutely not. “You should not stake with an exchange,” he said. “It hurts the network rather than helping, and the return on investment at the moment probably isn't worth it.” 

He recommends staking your ETH yourself, by running your own node—which anyone can do with a computer. “ It is doable by anyone with a sufficiently good computer, electricity, and internet,” he said. 

Zoltu continued that this was because giving Ethereum to an exchange to stake presented security issues. “You are giving your stake to someone else, who may decide to attack with that stake,” he said.

Others aren’t so concerned, and see benefits to companies like Coinbase or Binance making it easier for ordinary users to stake ETH and passively earn rewards. “It’s been planned for a long time. It should be pretty seamless on big trusted platforms,” said Artgreen’s Murphy. 

So should you be worried about staking on an exchange? Ethereum core developer Danno Ferrin said it depends on how much control you want. “My argument is I'm too much of a control freak to let the exchange out my stake at risk of slashing,” he said. 

“They are probably better at it, but when they make mistakes it will be at scale.”

The merge will not make Ethereum deflationary

With this upgrade, Ethereum’s monetary policy will change. But there is a common misconception that ETH, the blockchain’s native cryptocurrency, will become deflationary—it won’t. The move to proof of stake will add deflationary pressure to the cryptocurrency. Why? Because less cryptocurrency will be rewarded to those keeping the network secure than before.

Dan Held is an old-school Bitcoiner who has been in the space since the very beginning; he sold his price app ZeroBlock to Blockchain.info in 2013. But while he's largely seen as a Bitcoin maximalist by his half a millio

The merge will not make Ethereum transactions cheaper

Many think that the move to proof of stake will make Ethereum’s notoriously high gas fees, the costs associated with making transactions, lower. This isn’t true—although it is hoped they will go down with future upgrades.

Lots of applications and cryptocurrencies run on Ethereum’s blockchain. This means that often, to do things with such applications (think decentralized exchanges or DeFi lending protocols), you will need some Ethereum—sometimes a lot of Ethereum—to pay for the transaction. 

The network’s notoriously high fees have put some people off using the blockchain altogether, looking to “Ethereum killers” like Solana, Avalanche, or Tezos to mint NFTs. 

The merge will not make Ethereum transactions cheaper

Many think that the move to proof of stake will make Ethereum’s notoriously high gas fees, and the costs associated with making transactions, lower. This isn’t true—although it is hoped they will go down with future upgrades.

Lots of applications and cryptocurrencies run on Ethereum’s blockchain. This means that often, to do things with such applications (think decentralized exchanges or Defi lending protocols), you will need some Ethereum—sometimes a lot of Ethereum—to pay for the transaction. 

The network’s notoriously high fees have put some people off using the blockchain altogether, looking to “Ethereum killers” like Solana, Avalanche, or Tezos to mint NFTs.

The merge will not make Ethereum transactions cheaper

Many think that the move to proof of stake will make Ethereum’s notoriously high gas fees, and the costs associated with making transactions, lower. This isn’t true—although it is hoped they will go down with future upgrades.

Lots of applications and cryptocurrencies run on Ethereum’s blockchain. This means that often, to do things with such applications (think decentralized exchanges or Defi lending protocols), you will need some Ethereum—sometimes a lot of Ethereum—to pay for the transaction. 

The network’s notoriously high fees have put some people off using the blockchain altogether, looking to “Ethereum killers” like Solana, Avalanche, or Tezos to mint NFTs.