2022-09-05 11:47:20
Educational Post:
The Merge Ethereum Upgrade: All You Need To Know
Since its launch in 2015, Ethereum has established its place in the blockchain industry as a popular decentralized computing platform, allowing thousands of projects to be created on its blockchain. While it remains one of the most relevant blockchains, Ethereum’s current infrastructure can't scale its operations in a way that can attend to growing global demand. In order to combat the lack of scalability, the Ethereum team proposed a set of upgrades that would lead to an evolved Ethereum blockchain. These upgrades are the Beacon Chain, The Merge, The Surge, The Verge, The Purge, and The Splurge.
Why is Ethereum upgrading?
Blockchains are usually designed with a core principle of decentralization instead of relying on a central authority. The benefits of decentralized blockchains include being permissionless, trustless, and more secure by being resistant to single points of failure.
As blockchains grow more popular, platforms must ensure that they can match the global need for transaction processing speeds, also known as scalability demands. Failure to do so can result in congestion of the network, when blockchain capacity is overwhelmed by the number of pending transactions. Often, this leads to higher transaction fees.
However, achieving security and scalability can get tricky if blockchains want to preserve their decentralized nature. This problem is explained by the concept of the scalability trilemma as proposed by Vitalik Buterin. The Blockchain Trilemma describes the challenge of balancing three important properties – scalability, security, and decentralization.
The Beacon Chain
Previously known as Phase 0, the Beacon Chain marks the first upgrade in the series of major Ethereum upgrades. It was launched on December 1, 2020, and introduced Proof of Stake to the Ethereum ecosystem. Users can interact with the Beacon Chain in two ways: staking ETH or running a consensus client to secure the network. It currently runs in parallel to the Ethereum mainnet.
The Merge
The Merge is Ethereum’s next serious step to tackling scalability issues. Simply put, it integrates the two existing independent chains in the Ethereum ecosystem: the execution layer and the consensus layer (Beacon Chain).
The Ethereum mainnet is expected to merge into the Proof of Stake system coordinated by the Beacon Chain in September 2022. After The Merge, the ecosystem will only use a Proof of Stake mechanism to secure its network.
What’s beyond The Merge?
While there is no official announcement about the other Ethereum upgrades, The Surge, The Verge, The Purge, and The Splurge, Sharding is definitely in the works and scheduled to take place sometime in 2023 after The Merge.
Sharding
Ethereum will be increasing scalability with the help of sharding to increase throughput, likely reducing transaction costs and time. Sharding introduces shard chains, which are similar to regular blockchains – except they each contain only a portion of the blockchain data. Thanks to the specific subset of data provided by shard chains, nodes can verify transactions more efficiently.
The Merge’s impact on ETH
As one of the most prominent second-generation blockchain projects, Ethereum launched with an initial supply of 72 million ether (ETH). Under its original PoW model, a large percentage of this token supply is used to incentivize miners to secure the network.
Upon the shift to PoS, mining rewards will no longer be given out. As a result, there will be a net reduction in annual ETH issuance of approximately 90%. If the law of supply and demand plays out, this could possibly lead to a rise in the price of ETH. However, financial markets are unpredictable and volatile, and there are many other factors in play.
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