The Ethereum Merge. Everything you need to know.
It’s the biggest crypto event of the year, maybe even the decade: all eyes are on Ethereum as it prepares to merge its current mainnet with the new Proof-of-Stake consensus system. This is a monumental event with wide-ranging short- and long-term effects. Here is everything you need to know about The Ethereum Merge.
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The keys
In mid-September, the Ethereum Mainnet will merge with the Beacon Chain.
The merger marks the permanent transition of Ethereum from a Proof-of-Work (PoW) system to a Proof-of-Stake (PoS) system.
The exact date of the merger depends on the hashrate.
Proof-of-Work change will significantly reduce Ethereum’s power consumption.
This merger is the biggest upgrade in Ethereum history.
Bitpanda fully supports the merger of PoW to PoS.
What is the Ethereum Merge?
The current Ethereum Mainnet blockchain, which contains all recorded transactions and smart contracts since the launch of Ethereum, will merge with the Beacon Chain, an independent Ethereum blockchain that was created in 2020. Since its inception, the Ethereum Mainnet has been secured by a Proof-of-Work consensus system. Beacon Chain, on the other hand, has been using a Proof-of-Stake consensus system.
The Ethereum Mainnet and the Beacon Chain have been running separately but in parallel for the last two years. Fusion marks the joining of these two chains to become one. After the Merge, Ethereum will permanently use a Proof-of-Stake system to validate transactions and the creation of new blocks.
Why is Ethereum merging?
Ethereum has used a Proof-of-Work consensus mechanism to secure the Mainnet since its launch in 2015. However, Proof-of-Work is known to spend large amounts of energy to create new blocks through mining, which has harmful effects on the environment. It is also considered an inefficient system for scaling and has been criticized for its security flaws.
For years, Ethereum developers have been preparing for the eventual switch to Proof-of-Stake, creating the parallel Beacon chain in 2020 with the goal of eventually merging the two chains into one. Switching to a Proof-of-Stake system has several advantages:
It’s more sustainable
In a PoW system, miners consume electricity in exchange for issuing new blocks. Proof-of-Stake eliminates the need to mine with a lot of energy, because the network is secured by validators that stake ETH to validate transactions, which does not consume as much energy. Therefore, PoS is considered more environmentally friendly than PoW, making Ethereum a greener platform after the merger. It is estimated that the energy consumption of Ethereum will be reduced by around 99.95%.
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It’s safer
While a PoW system requires hardware and coding skills, PoS makes it easy for anyone to gamble and thus help secure the network. This is ensured through a process called slashing, which makes it very expensive to attack a network. In a PoW model, a network attack can continue if someone has 51% of the network power. In the PoS model, if it can be proven who is attacking the network, the attacker’s involvement is drastically reduced and the attack ends.
When is the merger?
While a PoW system requires hardware and coding skills, PoS makes it easy for anyone to gamble and thus help secure the network. This is ensured through a process called slashing, which makes it very expensive to attack a network. In a PoW model, a network attack can continue if someone has 51% of the network power. In the PoS model, if it can be proven who is attacking the network, the attacker’s involvement is drastically reduced and the attack ends.
When is the merger?
While transaction speeds and scaling capabilities won’t improve this time around, the merger will set the stage for sharding in the next big update. Sharding allows the blockchain to scale vertically by creating 64 blockchains that spread all transactions, reducing network congestion caused by queued transactions on a single blockchain. Removing the power requirement for validators in the PoW system and changing the consensus mechanism to PoS will ultimately facilitate faster transaction processing.
Gas rates
Since the upcoming update will not affect network capacity and will focus solely on transitioning from a Proof-of-Work system to a Proof-of-Stake system, gas rates will not change. This means that gas rates will not be reduced with this update.
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How to prepare for The Merge
Some things to keep in mind as Ethereum merges:
- If you have ETH, you don’t need to do anything to protect your funds or wallet before The MErge. Bitpanda supports PoS upgrade and that means your assets are safe with Bitpanda.
- Be careful – there are many scams out there offering an ETH2 token. There is no ETH2 token and if you have ETH on Bitpanda, you don’t need to do anything to prepare for The Merge.
- Withdrawals and deposits on the Ethereum network will be suspended a few hours before to ensure the safety of the funds. Once Bitpanda has verified that the PoS network is secure, Bitpanda will re-enable deposits and withdrawals.
- Any support for forked assets on the PoW chain will be evaluated with Bitpanda’s regular asset listing process.
Potential airdrop for ETH holders
Bitpanda is aware that there is a possibility that the Proof-of-Work (PoW) chain assets will still have value after The Merge, so Bitpanda would like to know your preference to receive forked assets once they are tradable on Bitpanda.
If you hold ETH on Bitpanda or Bitpanda Pro, you will receive a notification within the Bitpanda Broker app (but not within the Bitpanda Pro app) in the coming days inviting you to signal your choice to receive ETHW (Ethereum in PoW) before September 12, 2022. Please note that this is not a guarantee of any ETHW allocation as it is subject to external factors and any forked assets will follow Bitpanda’s regular listing process.
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April 24, 2024
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