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By Noft Games on June 176 min read
Section: Crypto Theory

What Is The Ethereum Upgrade? / Ethereum Merge. All You Need to Know

What exactly is the Ethereum Merge everybody is hyped up about?

How does it affect the crypto community?

When will it happen?

The Noft Games team is here to give you a breakdown of the most anticipated update in the blockchain history. So, let’s hop into the details and see what this massive change is about.  

The Merge. What Does it Mean?

The merge is essentially a transition of Ethereum blockchain from Proof-of-Work model to Proof-of-Stake protocol. 

What actually happens is that the Ethereum network, currently using the Proof-of-Work consensus mechanism, will merge with the Beacon Chain. As a result of the merge, Ethereum 2.0 will be created, fully implementing the Proof-of-Stake model. 

The Beacon Chainis a replica of the original network, running parallel to the main Ethereum blockchain operating on the Proof-of-Stake algorithm.

Proof-of-Work (PoW). 

Any transaction on Ethereum should be validated. PoW algorithm implies that miners are the ones validating all the transactions: the more computing power a miner has, the more chances they have to create a new block, record your transaction on it, and then add it to the blockchain, securing the operation this way.   

The PoW model means there are devices currently running on the blockchain  validating transactions, and the people that are running computers get rewarded ETH for doing so. The process is essentially known as Ethereum mining.

The PoW model has been generally criticized for wasting energy, being inefficient, and requiring expensive mining equipment. Evidently, the system is flawed and outdated, and that’s where the Proof-of-Stake mechanism comes in. 

Proof-of-Stake (PoS) is a separate consensus mechanism that allows stakers to lock their owned tokens. The more tokens they have, the more blocks they can provide.

It has always been a part of the Ethereum roadmap to move from PoW to PoS. Now, finally, Ethereum is going to be moving to a Proof-of-Stake system, where instead of using hardware and electricity, you will stake your cryptocurrency online to participate in the blockchain to help validate transactions and be rewarded for that. 

What Crypto Community Expects from Ethereum 2.0 

👉With PoW, we have a bunch of miners that use powerful computers and all work simultaneously to solve a mathematical puzzle in order to add a transaction. Obviously, using that much energy is not really environmentally friendly. 

✅ The main point is PoS has a massive advantage: according to the initial forecast, it is going to be using 99% less energy than the current PoW consensus mechanism, which is being used on Ethereum (and also Bitcoin, by the way).  

👉 Ethereum is very slow due to how long the confirmation for each transaction takes. The blockchain can handle 30-45 transactions per second (TPS), which roughly translates to 1.3 million transactions daily. To illustrate how painfully low this is, we can compare it to Avalanche, processing 5,000 TPS. 

✅ The transition promises to increase the number of transactions up to 100,000 operations per second. Most probably, we won’t hit this number at launch, but this is definitely what the network is going to be capable of.

👉 Most blockchains today outside of Bitcoin and Ethereum implement a PoS mechanism. Some examples are Solana, Cardano, and Avalanche - they are faster and cheaper, which makes them Ethereum competitors. 

Obviously, something needs to change with the gas fees, and that is what is desperately expected from this merge.

Right now, the transaction fees on the Ethereum blockchain are incredibly high: during peak times of volume, people have to pay thousands of dollars to process one transaction. 

❌ It has to be noted, however, that PoS itself doesn’t make crypto faster, but that is what can be achieved on top of PoS. So no doubt, solutions are being worked on to make it cheaper and faster on top of Ethereum 2.0 in the future - but highly likely not yet.   

👉 Ethereum 2.0 is also highly expected to improve blockchain security. 

✅ It is set that the updated version of Ethereum will require a minimum of 16,000 validators, which makes it more decentralized. And more decentralized means more secure.

What Steps are Already Implemented

Things can go wrong if they just merge the mainnet right away as there is so much to lose: ETH losing value, all the other assets on Ethereum losing value, all the dApps, and, lord forbid, NFTs as well. Therefore, before actually going to the main network, Ethereum successfully transitioned to the Ropsten Testnet on June 8th, to see if everything goes smoothly. 

This test was huge for a couple of reasons: 

📌 It lets the developers and ETH enthusiasts know that the PoS model is even possible,

📌 It allows the devs to test the code and see if any software issues and bugs need to be addressed before it goes live with the mainnet. 

After the Ropsten transition, two more testnets are scheduled to be transitioned to PoS, and only after that will the whole merge happen. 

What is Next

Sharding is the next upgrade, according to the Ethereum Roadmap, which will obviously not happen soon.  

Sharding is splitting a database to spread the workload

How it works currently is that every computer checks every transaction, and this causes bottlenecks. With the Sharding upgrade, all these transactions will get split up into shards, and validators will only have to work on the transactions into a specific shard. Basically, the work gets divided. 

By using sharding, the number of transactions per second could possibly go up drastically. On top of this, sharding will also make the network even more decentralized, as you no longer need a supercomputer to become a validator. 

How to Prepare 

If you hold tokens on the Ethereum mainnet, you will be automatically transitioned to the new blockchain. If you are not a staker, not running an ETH node, there is no need to do anything - everything will keep working as is for you. The update will be automatic and behind the scenes. 

When It Comes

Once the Proof-of-Stake chain has been thoroughly tested and secured, and it goes extremely well, we will see an actual merge, and Ethereum will legit become a PoS blockchain. 

According to the most optimistic scenario, August was supposed to be the deadline for the merge, but it will possibly be pushed to the end of 2022. The most realistic timing could be 2023 as it continues to get delayed. 

Apparently, sometime in the course of the next six months, Ethereum’s mainnet is to merge with the Beacon chain. It seems a positive thing for Ethereum as there will be more security, sustainability, and faster transactions. 

Crypto enthusiasts hope, eventually, that Ethereum 2.0 is going to bring crypto to the next level. The Proof-of-Stake Ethereum will have all the chances to destroy any competition and give a very positive direction for all the platforms working on the Ethereum blockchain. Undoubtedly, this major event will encourage other blockchains to evolve faster and come up with remarkable updates, too. 

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