The Ethereum Merge: What You Need to Know

By the Coinscope Team·14 Sep 2022·
The Ethereum Merge: What You Need to Know


The Ethereum Merge is fast approaching. This is a significant event for the Ethereum network and one that has been a long time in the making. In the following article, we will analyze the main reason the merge has been set into motion and why that is important for the scalability of the Ethereum blockchain.

How Does Ethereum Work?

Before we are able to understand what is the merge, we need to understand how Ethereum currently works. Ethereum is a blockchain using the Proof-of-Work (PoW) consensus mechanism. That means that is basically based on the concept of mining.

Mining for cryptocurrency is a process where computers are used to solve complex mathematical problems in order to verify transactions on the blockchain. The Ethereum blockchain requires miners to verify transactions in order to earn a reward in the form of ETH.

While crypto mining can be a lucrative endeavor to earn crypto tokens, it does have a negative impact on the environment. The electricity required to run the mining rigs can be quite high, and this consumes a lot of energy. This energy typically comes from non-renewable sources, which means that mining can contribute to greenhouse gas emissions and climate change.

Proof-of-Work vs Proof-of-Stake

There are two main types of consensus mechanisms used by cryptocurrencies to process transactions: Proof-of-Work (PoW) and Proof-of-Stake (PoS). The two methods differ in how they determine who has the authority to record the next set of transactions, or “block,” on the network.

The Proof of Work (PoW) system -that Ethereum is currently using- involves computers solving cryptographic puzzles to earn the right to verify transactions on the blockchain. The goal is to use a long string of numbers and letters, called hashes, to fend off malicious attacks and verify that a transaction is valid. When someone puts data through a function on the network -which is the basis of transactions on the blockchain-, it can only generate one hash.

When a transaction occurs on the blockchain, the resulting hash is distributed across the entire network. This allows for trustless verification of the transaction, meaning that no third party is necessary to manage or verify it.

Proof of stake (PoS) on the other hand, relies on validators who own the coins related to the blockchain. With proof of stake, a validator is chosen at random, based on how many coins they have locked up in the blockchain network- also known as staking. The coins act as collateral, and when a participant is chosen to validate a transaction, they receive a reward.

To ensure the security of transactions, Proof of Stake requires multiple validators to agree on the accuracy of a given transaction. Once enough nodes have verified the transaction, it is processed.

What is the Ethereum Merge and why is it called merge?

The Merge is actually a proposed change from the current Proof-of-Work (POW) consensus algorithm to a new Proof-of-Stake (POS) algorithm. This would allow Ethereum to be more energy efficient and would allow for a wider range of users to participate in its network.

Ethereum has a PoS network called the Beacon Chain (first established in 2020), but it is not being used to process transactions yet. For the time being, it is simply a preparatory area for computers handling the Ethereum network in anticipation of the PoS upgrade. Ethereum’s complete switch to PoS necessitates merging the Beacon Chain with Ethereum’s PoW mainnet.

The importance of the Merge

The main goal of the merge is to improve the scalability of the Ethereum network. The current one is not designed to handle a large number of transactions and, as a result, it has become congested and slow. The merge would address this issue by creating a second currency that would be used to power the Ethereum network. This would allow the network to handle a larger number of transactions faster and with lower energy costs.

When Proof-of-Stake is implemented, miners will no longer have to solve cryptographic puzzles to verify new blocks bringing a less costly, environment-friendly and secure procedure.

Will the Merge lower the gas fees?

Gas fees are the cost of conducting a transaction on the blockchains. The ones in the Ethereum network were frequently increased during busy periods because of the higher demand for transactions to be processed.

Since gas fees can reach a high amount of dollars during Ethereum’s busiest periods, it is understandable that gas fees are considered a major issue for users. This makes the network unviable for many people during these times.

However, the answer if the Ethereum users will meet lower gas fees is ‘No’. The merge will change the consensus algorithm of the network to Proof-of-Stake (POS) but it will not increase the size of the network capacity. In consequence, there will be no impact on the cost of the gas fees.

Final Thoughts

It is the first time that two blockchain networks will join together to form one and the community is hyped to see the results. The Merge is expected to be completed on September 15th and it is an important event for Ethereum and a huge step forward for the cryptocurrency community as a whole.

By the Coinscope Team·14 Sep 2022·

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