Uncalm before the storm: “The Merge” is coming
Ethereum miners have inflated the hashrate to a historic peak. It’s all the fault of “The Merge” discussed in the last decade — the transition of the Ethereum network from the proof of work (PoW) consensus mechanism to proof of stake (PoS). It was announced in the second quarter of 2022.
As follows from the data of the Coinwarz website, on January 2, 2022, the Ethereum hashrate, for the first time in history, exceeded one petahash per second (exactly 1.0069 PH/s). Then, on April 11, 2022, the Ethereum hashrate reached a record value of 1.1328 PH/s, which means that a few months after reaching one petahash per second, the hashrate increased by 12.5%. How can we explain such a powerful leap? What attracted miners so much? There is only one reason — “The Merge”.
“The Merge” is a long — planned process of transition of the Ethereum network to the PoS consensus mechanism. Since the launch of Ethereum on the PoW consensus mechanism in 2015, the issue of the network’s transition to an energy-efficient PoS consensus mechanism has been discussed. After several years of work, Ethereum developers decided to create a parallel network that will work on the PoS consensus mechanism. This is how the Beacon Chain appeared.
Beacon Chain can’t handle accounts or smart contracts. So far, it is needed to conduct or coordinate the expanded network of shards and stakers. But, the main role of the Beacon Chain is to become the basis for the future transition of the Ethereum ecosystem to PoS — the main goal of “The Merge”.
Judging by the official announcement, “The Merge” is planned for the second quarter of 2022. Very soon, the Ethereum network will be disconnected from the PoW consensus mechanism and “merged” with the Beacon Chain. “This upgrade represents the official switch to proof-of-stake consensus. This eliminates the need for energy-intensive mining and instead secures the network using staked ether. A truly exciting step in realizing the Ethereum vision — more scalability, security, and sustainability,” the announcement says.
But is “The Merge” as well as the developers assure us? What can this process lead to? In the expert environment, there are different opinions about “The Merge”. Many worry that the process may not go as smoothly as the community would like.
“There’s never been, in the history of blockchain networks, a change on the scale of Ethereum’s transition from proof of work to proof of stake,” says Chase Devens, an analyst at researcher Messari.
Indeed, if an update happens in three months, ETH mining will become impossible. Hence the question: why did the hashrate jump up so much? Everyone who is familiar with mining knows that the hashrate jump indicates that more computing equipment is being connected to the network. And in the situation with “The Merge”, this is quite paradoxical. Why do people invest thousands of dollars in ETH mining equipment if it is known that in the near future the Ethereum network will completely switch to the PoS consensus mechanism? Does anyone really have information that “The Merge” will not happen this time, contrary to the promises of the developers? Think about it before going to bed.
Tim Beiko, a computer scientist who coordinates Ethereum developers, says that he is “more concerned about people who don’t even know that this [“The Merge”] is happening, and they buy this miner for $ 3,000, and after three months it stops working <…> It would be a bad idea to start mining today”.
Matt Hougon, CIO at Bitwise Asset Management, thinks that “The Merge” is “a very high stakes technological upgrade, and there are risks it could be delayed or there could be issues in the implementation.” But, Beiko says that “this time it’s for real,” adding also that “The Merge” is still treated with a degree of skepticism, because “Ethereum has promised proof of stake for five years.”
Disconnecting the Ethereum network from the PoW consensus mechanism will undoubtedly lead to miners switching to other, similar networks. Dogecoin, which has become a meme, may be among them. Miners who earning ETH are clearly waiting for problems, which cannot be said about investors.
Investors may benefit from the fact that the amount of ether in staking will increase, and the amount of ether in circulation will decrease. Therefore, the value of the coin will be higher. Also, the level of approval of Ethereum in society will increase, since after “The Merge” the energy costs for the Ethereum network will significantly decrease. You can read more about the possible consequences of “The Merge” here.
“Even my daughter has picked up the ‘NFTs are boiling the oceans’ hysteria,” says Ben Edgington, lead product owner at ConsenSys, which builds infrastructure for the Ethereum blockchain. “I expect that freeing ourselves from the negatives of proof of work will definitely help make applications like DeFi and NFTs much more socially acceptable, leading to significantly accelerated adoption.”
Opinions about “The Merge” are different, but everyone is united by one thing — the expectation of major changes in the industry. I can’t say for sure now what will happen after the update. No one can. But what I am sure of is that we are all waiting for a large-scale historical event in our cozy digital world. We are waiting for changes, monitoring the situation and hoping for the best.
