Ethereum Fundamentals: 2022 Consensus Shift, What Lies Beyond

The Merge Explained, Proposer/Builder Separation, Consensus and Execution Layers Decoded

Ethereum’s historic transition to Proof of Stake in 2022, commonly known as The Merge, marked a pivotal moment for the crypto industry. Despite the challenges of the year, this event stands out as a memorable and crucial turning point in Ethereum’s evolution. In this article, we will delve deeper into the specifics of The Merge, explain Ethereum’s dual layer approach, and explore scheduled developments for the world’s leading smart contract protocol in 2023 and beyond.

What was The Merge?

The Merge was a planned transition of Ethereum from Proof of Work (PoW) consensus to Proof of Stake (PoS); the Beacon Chain, which serves as the consensus layer, was introduced as part of this process. Previously referred to as Ethereum 2.0, it operates in conjunction with the Ethereum mainnet (which has existed since genesis), commonly referred to as the execution layer.

Along with the consensus mechanism shift, The Merge also introduced proposer/builder separation (PBS), a design feature that divided the key consensus roles of block proposers and block builders. Prior to the shift, both responsibilities were carried out by miners in Ethereum PoW, granting them substantial control over a critical aspect of network consensus and potentially enabling the occurrence of malicious MEV. By separating these important roles, the network is advancing towards genuine decentralization and mitigating the detrimental effects of MEV.

The Beacon Chain was successfully launched in December 2020, but the full integration and merger of the two layers wasn’t completed until September 2022. This marked the completion of the upgrade to the Ethereum protocol.

The successful implementation of The Merge represents a significant achievement, not just in blockchain, but computer science. It required a substantial level of technical coordination and the potential consequences of failure would have had a significant economic impact in the many billions. The complexity of the task can be likened to refueling a plane while in flight, and the Ethereum Foundation is to be commended for their outstanding execution in completing The Merge.

Eden Network launched a new product suite in conjunction with The Merge. Focusing on the MEV ecosystem within the Ethereum block production pipeline, a custom relay and builder were developed to help democratize and distribute the value extracted from MEV searchers. At the end of 2022, Eden Relay was the most profitable relay on Ethereum, regularly exceeding the average block reward by 200%.

Consensus Layer: Ethereum’s Heart

Ethereum’s consensus layer serves as the heart of the network and is responsible for maintaining its integrity. As with PoW, there is no central entity governing the chain, instead individual users can participate in consensus by delegating their ETH to validators that follow the protocol’s rules.

Ethereum’s consensus layer serves as the heart of the network, and is the crucial role of maintaining its integrity. Similar to PoW, the consensus mechanism is decentralized, meaning that there is no central authority governing the chain. However, PoW consensus relies on miners with expensive hardware to secure the network and reach consensus; but on Ethereum, individual users can participate in the consensus process by delegating their ETH to validators who abide by the protocol’s rules.

The upgrade from PoW was designed with the following objectives in mind:

Decentralization — To enable anyone to participate in network consensus, regardless of the availability or cost of specialized mining equipment.

Security — To enhance network security while also increasing the number of network participants.

Simplicity — To simplify the process of participating in Ethereum, making it more accessible to a wider audience.

Longevity — To adopt a more modular approach, facilitating future upgrades without requiring significant changes to the underlying architecture.

Resilience — To design a robust system that maintains high uptime, even during major network upgrades or in the unlikely event of a large number of network participants going offline.

In addition to the above objectives, the consensus layer upgrade significantly improves Ethereum’s energy efficiency, resulting in remarkably reduced energy consumption compared to PoW blockchains.

Execution Layer: Ethereum’s Brain

The execution layer is the other fundamental component of the Ethereum network that facilitates the execution of transactions and smart contracts. It is the brain that operates the entire ecosystem, including the transfer of ETH and other tokens, participation in DeFi applications, and the minting of NFTs.

Execution clients, such as Go Ethereum (Geth), Nethermind and Erigon, are responsible for broadcasting transactions and managing the Ethereum state. These clients use the Ethereum Virtual Machine (EVM) to ensure that all transactions comply with the protocol’s rules.

Beyond The Merge: Ethereum in 2023

The Ethereum Foundation’s 2023 roadmap prioritizes two key initiatives — the ability to withdraw staked ETH and addressing scalability issues on the network.

The Shanghai upgrade, scheduled for March, will enable users to withdraw their staked ETH. Since the launch of the Beacon Chain in 2020, users have been eagerly awaiting this upgrade.

Proto-danksharding, a variation of sharding, aims to improve network scalability by dividing the network across multiple chains or “shards”. This approach allows for more simultaneous transactions (up to 10x the current amount) and increases the capacity for data processing.

The implementation of proto-danksharding in a production environment does not have a confirmed date, but it is estimated to occur in the third quarter of 2023.

Beyond 2023

In December, Vitalik posted a diagram outlining the Ethereum roadmap and priorities, with a focus on addressing issues of scalability, cost, and network complexity. It’s important to note that the specifications and timelines are subject to change as we’ve seen in the past with EIP-1559 and The Merge. Software is hard!

Ethereum’s technology and influence is undeniable, and it has an unmatched community and network effect that is attracting some of the brightest minds in the industry. Regardless of timelines, the Ethereum network is expected to continue to evolve and improve as we move towards a more decentralized future.