Top 5 things you need to know about Ethereum’s Merge.
Ethereum’s Merge has been the source of many memes over the years in the crypto space. But now the transition from PoW (Prof-of-Work) to PoS (Proof-of-Stake) seems more likely to occur than ever before. Ethereum’s developers have even said publicly that the merge is scheduled to happen on September 19th, marking the first time a date has been set. However, such an important event has generated many doubts and misconceptions, here are the top 5:
1. The Merge will not reduce gas fees. Anyone who has interacted with DeFi will be aware of the high gas fees when interacting with Ethereum’s L1. Unfortunately, the Merge is not designed to lower the gas fees or make the network faster meaningfully. The Merge will make the block times faster but only by 12%. Block times will go from 13.6 seconds to 12 seconds, a marginal increase which will hardly have any impact when fees are concerned. It is however designed to switch the consensus mechanism. That means that block producers will be validators instead of miners, and miners will be disincentivized to produce blocks thanks to the difficulty bomb.
2. The difficulty bomb. The difficulty bomb is a mechanism in Ethereum’s protocol that will increase the difficulty and therefore the time to process a transaction by miners using the PoW mechanism. When this mechanism goes off, miners won’t be able to turn a profit as they have been doing since. That will make miners set up shop elsewhere like Ethereum Classic, or simply stop mining at all.
3. The Merge has ESG in mind. Regardless of your views on ESG, it plays a key role right now when it comes to institutional public relations. ESG investing has classified PoW as environmentally unfriendly. This has prevented many businesses to explore Ethereum as they would have received backlash and sanctions if they had done so. That said, PoS is considered by “ESG standards” as environmentally friendly, therefore the switch of consensus mechanisms will make Ethereum a new safe ground for institutions worldwide to adopt the programmable blockchain that Ethereum is. However, the repercussions don’t end there. Ethereum’s tokens that up until now have also been badly regarded by “ESG standards” will also be in their majority considered ESG friendly. That will mark an inflexion point on how the cryptocurrency market is viewed from the outside, fading away the narrative that cryptocurrency is harmful to the environment, whether is it true or not.
4. The Merge will reduce Ethereum’s energy consumption by 99.5%. Running a validator node is far less energy-hungry than a miner. Keeping things broadly, a miner must guess a number to mine a block, while in a PoS system a validator is assigned to validate a block. That results in fewer computations required to produce a block, which in itself results in less energy consumed. While the Ethereum network currently uses the energy of a medium-sized country, when the Merge comes, it will only require the energy of a simple town.
5. The Merge will make Ethereum deflationary. When the Merge has finally been implemented the issuance of new ETH coins will fall by a staggering 90%. This drop in issuance combined with the past Ethereum Improvement Proposal EIP-1559 (which burns part of the gas fee) will make by almost all calculations Ethereum deflationary. In case you want to test for yourself how deflationary Ethereum will become here is a Merge simulator that will let you do so.
At the end of the day, what’s clear is that Ethereum’s Merge will be a major event for the whole cryptocurrency space, even for PoW chains like Bitcoin. Some PoW maximalists still exist and will probably storm your Twitter feed with pitchforks and blazing effigy claiming that PoS is the devil. Nonetheless, Ethereum’s Merge will impact how the remaining PoW chains are viewed not only inside the crypto-verse but also from the no coiners’ perspective, so let us pray to the blockchain gods that everything goes without a hitch for crypto’s future sake.
