The Merge: What Does it Mean for Ethereum

DIFX Edge

Ethereum: Past, Present, and the Future

Ethereum started its journey as a Proof of Work (PoW) blockchain, relying on miners to run the network, secure it, and verify the transactions. It didn’t take long for the network to grow significantly in size as it offered a unique and new platform for developers to build their decentralized applications.

Beacon Chain

Beacon Chain was the fundamental piece of the new platform, setting up the stage for a smooth transition to a Proof of Stake (PoS) network. Beacon Chain went live on December 1st, 2020, allowing users to become validators and earn rewards by staking their Ethers on the deposit contract.

The Merge

The Merge is the much anticipated Ethereum upgrade that will combine the Beacon Chain and the Mainnet, removing the mining process once and for all. PoS allows for a more eco-friendly blockchain, making Ethereum ready for the Sharding upgrade which will improve Ethereum’s scalability and network capacity greatly.

Sharding

After The Merge, which literally merges the two separate chains together, Ethereum will have its Sharding upgrade. Sharding will focus on the network’s capacity and scalability, making it cheaper without undermining its security.

The Merge: Misconceptions

As one of the main milestones in Ethereum’s journey, The Merge comes with a few misconceptions. Let’s go through some of them together.

  • Reduction in Gas Fees: The Merge will essentially switch Ethereum from a PoW to a PoS network, not focusing on its capacity.
  • Faster Transaction Speed: There might be a slight change in the transaction speed, but it won’t be a specific focus of The Merge.
  • Downtime of the Mainnet: The Merge will happen with zero downtime.
  • 200% Increase in Staking APR: A 50% increase in APR is expected after The Merge.
  • Withdrawal Will Be Open: Staking withdrawals will be open after the Shanghai upgrade, not The Merge.

The Merge: The Effects on Ether

Even though many market members believe that The Merge will have a positive effect on the price of Ether, the very opposite may happen as well. On the positive side, The Merge will help Ethereum come closer to Sharding, which will decrease the transaction fees.

About DIFX

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