In brief:
- The 2014 vision for ETH.
- How does the Merge impact ETH?
- ETH hard fork?
- The impact on developers.
- ETH turning deflationary.
- What to do ahead of the Merge.
In an article from 2014, Vitalik Buterin outlines his vision of what Ethereum could mean to humanity.
It was written just before the next week’s blog post that announced Ethereum is going public.
Just 1 Bitcoin back then bought you 1000–2000 Ether.
From the beginning, Vitalik and his team were not happy they had to go the Proof Of Work route, a process that inefficiently converts electricity into heat, further warming our planet. And if Ethereum were to be the computer changing humanity for the better, it’ll need a solution that helps keep it decentralized, secure and allow for immense, even exponential scalability.
That challenge still stands and is not over by any means. Until we have a successful Merge event, it stands tall, staring Vitalik right in the eyes.
It is fascinating how blog posts from 2015, mere months after ETH went public, were already predicting solutions to the problems they would be encountering.
How will The Merge impact ETH?
Sharding was the top priority almost half a decade ago since it was meant to address the troubling surge in gas prices that ETH was experiencing.
However, because layer 2 technologies are now widely used to accelerate transaction execution, sharding plans have changed to focus on determining the best approach to split the workload of storing compressed calldata from rollup contracts, enabling a rapid increase in network capacity. Without switching to proof-of-stake first, this would not be viable.
What precisely is merging, then?
The Beacon Chain, a distinct blockchain established in 2020 and now operating in parallel with Ethereum, will be incorporated into the Ethereum mainnet (blockchain) as part of the update.
The Beacon Chain will provide proof-of-stake consensus to Ethereum, which is 99.95% less energy-intensive than proof-of-work (PoW).
That is a result of PoS not requiring network nodes to perform intricate calculations. Instead, it secures the network by asking users to stake some of their Ethereum in the event that the system picks them at random to be a block validator.
In addition to lowering the barrier to entry for anyone who wishes to be a part of the staking community, transitioning to proof of stake has massive environmental benefits.
Staking doesn’t entail any expensive equipment, whereas crypto mining uses it to solve problems with a cryptographic foundation. Any laptop does the job. This could increase the number of validators for Ethereum, increasing its decentralization.
Fears of ETH hard fork
The network might split if those angry Ethereum miners are able to garner enough support to maintain a proof-of-work version of Ethereum.
A blockchain fork is simply a network split where the two chains have the same ledger history before the break but continue in separate directions afterward.
ETH miners have sunk hundreds of millions of dollars into computing equipment dedicated to PoW, who will soon either be out of work or need to shift to other blockchains in order to make money.
If the ETH fork occurs, the Merge is expected to displace more than $5 billion in Ethereum mining equipment in the form of graphics cards and application-specific integrated circuits or ASIC mining rigs, the most of which belong to Chinese miners.
One ETH fork has already happened, so is the possibility of another one occurring that far-fetched?
If a hard fork does happen, we could see duplication of assets on the copied blockchain. This could also be a taxable event which could garner more sell pressure in the markets.
The future for developers and dApps
The most important message for developers is that the Merge will have almost no immediate impact on them.
Their apps will continue to function exactly as before.
One thing it will do is lay the groundwork for future network enhancements that will reduce congestion and increase scalability.
“The exciting thing for developers working on Ethereum apps is that it’s a ‘no-op.’ We’re able to develop in a way that doesn’t require any upgrades or any thinking about what they’re doing to change.”
- Rob Dawson, CTO ConsenSys
The Ethereum foundation ensures there’s been a lot of testing over the past couple of years, every edge case has been hammered out, and it should just be like flipping a switch. This should also be the experience for developers.
So it should be a seamless experience for everyone involved.
The big deal will be the foundation that the Merge leaves for future development. This foundation will enable for protocol-level improvements to boost Ethereum capacity.
As a result, it will be able to sustain more transactions, lowering network fees and increasing throughput.
Just to be clear, the Merge to PoS won’t directly impact gas fees. They will essentially stay the same but it’s something that will be fixed through time with additional incremental updates.
In the future, the previously described Layer-2 technologies will be able to have core protocol layer solutions with Sharding — a process of partitioning a database horizontally to share the load — that will function in tandem with them. It will aid in distributing the burden generated by massive volumes of data required by Layer-2 networks running on Ethereum.
Sharding becomes possible following the Merge and is projected to be available in 2023.
ETH becoming deflationary
There’s one thing Bitcoin has as an advantage over Ethereum, and that’s the maximum supply of 21 million. Its circulating supply is growing at a steady rate of 1.5 percent per year.
Nothing can ever change Bitcoin’s max supply.
Ethereum, on the other hand, has had technically infinite supply this whole time and has been growing at a steady rate of roughly 5 percent a year.
From the perspective of technology and what its implications bring to the table, Ethereum was always ahead, but for the degens who aren’t in it for the tech, Bitcoin has always been a safer bet in terms of price appreciation.
This could all change with PoS.
Not only does PoS make ETH more safe, reliable, and decentralized, but it also turns Ether into the world’s most powerful computer as well as the cryptocurrency with the most robust battle-tested utility.
In addition to all that, the staking APR will increase post-merge.
The up-to-date estimations from the Ethereum foundation predict a 50% increase in APR post-merge.
What now?
For the majority, it’ll be like going to bed and waking up, only feeling a subtle change in the air as the sun rises.
You don’t have to do anything with your Ether to capitalize on the Merge. And the developers do not have to upgrade anything in the code for their dApps to work properly.
It’s almost ironic that the greatest and most anticipated blockchain event in history must pass quietly in order to be successful.
With the Merge scheduled for mid-September, all we have to do is wait patiently and pray that nothing goes wrong.
In conclusion, gas fees will stay the same for the time being, but Ether will become deflationary.
And all future improvements to the protocols we know and love will use PoS, transforming Ethereum, the computer that will alter humanity for the better, into a safer, more dependable, and exponentially more decentralized currency.
