Ethereum Merge

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The Ethereum Merge is the Merging of the Ethereum Main Chain with it's parallel running Beacon Chain

Overview

Since its birth in 2015, Ethereum has been pushing through the new limits of crypto, adding a block of transactions every 12 or 13 seconds on average through its Proof-of-Work consensus. Today, Ethereum’s Proof-of-Work security model is estimated to consume roughly 100 TWh per year, the equivalent of a country like the Netherland — or 3% of the US energy consumption. (The Ethereum Foundation shows a similar trend).

Proof of Stake (PoW)

While Ethereum consumes half the energy bitcoin does, it still is a lot and the Ethereum community has been concerned for a while, in response, a new consensus algorithm has been under development for a while and it’s called Proof of Stake (PoS). Proof of Stake does not rely on solving math equations like Proof of Work (PoW) does so it can work with little computing power, thus low energy consumption for Ethereum.

Proof-of-Stake switches “miners” of Proof-of-Work with “validators”: to participate in the consensus, validators must lock some capital in the form of ETH into a smart contract — that’s the staking. Validators are then chosen randomly to propose the next block or to validate someone else’s block. In return, they get a reward proportional to their stake.

If a validator behaves fraudulently (frontrunning), its stake will be “slashed”: it will be taken away. This ensures that validators stay honest and keep doing their work correctly.

Proof-of-Stake replaces the heavy machinery necessary for Proof-of-Work with lightweight computing. There is no need to buy expensive equipment or spend huge amounts of electricity to participate in securing the network.

The move to Proof-of-Stake is estimated to reduce the energy consumption of the Ethereum network by 99.95%.

The Beacon Chain

Even though Ethereum has not switched to Proof-of-Stake fully yet, staking had already been taking place since December 2020 on what’s called the Beacon Chain.

The Beacon chain is a chain that runs in parallel to Ethereum’s main chain and uses the Proof-of-Stake consensus. Right now, the Beacon chain does not validate any Ethereum transaction or smart contract execution, it only validates its own blocks.

While a minimum stake of 32 ETH is required to become a validator, users with less cash can gather their funds into staking pools. This allows anyone to join the staking process and participate in the Beacon chain’s security.

ETH staked cannot currently be “unstaked” or withdrawn. This will only be implemented after the merge with a new update.

Things the merge will bring:

  • Less energy consumption
  • Constant block time (important to protocols for predicting)
  • An already finalized block cannot be reversed (there is a possibility in Proof of Work)

After the merge:

Right now, nodes running Ethereum software (Eth1 clients) take care of both execution of transactions and smart contracts and consensus (PoW).

Nodes of the Beacon chain run their own software, called Eth2 clients. Eth1 and Eth2 clients barely interact with each other.

After the Merge, nodes will run these two pieces of software in parallel: the Eth1 client for execution (with Proof-of-Work disabled), and the Eth2 client for consensus. The newer piece will coordinate blocks and talk to the execution piece who will take care of contracts and transactions.

Sources:

1- https://coins.substack.com/p/ethereum-20

2- https://ethereum.org/en/upgrades/merge/