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Why Ethereum Merge Is So Important?

The cryptoverse is waiting for this since 2015! Yes, The Ethereum Merge. Why is Ethereum doing it in the first place? Why is it taking so long? OK, come let’s discuss. I am thinking to make this article as simple as I can. I don’t desire it to be crowded with technical terms.

It all started when they launched Beacon chain in 2020. The purpose of Beacon chain is to be a proof of stake chain. No DEFI apps, no transactions and no NFTs – an empty blockchain whose sole purpose is to become a proof of stake chain (PoS). The beacon chain has already around 400,000 validators and 13 million ETH actively staking.

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Why is it consuming so much time for the merge?

They needed enough time for stakers, so amount of staked ETH should be sufficiently large for securing the network at the time of merge.  Next week (September) this beacon chain will be merged with the main Ethereum blockchain. That is why this is called Ethereum merge. Once they get merged, Ethereum proof of work validation will be replaced by proof of stake validation.

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Why we need Proof of stake validation?

Proof of work network is secured by miners. For securing the network, miners purchase mining hardware and run it. It comes with huge energy costs.  Few environmental activists have come forward with the argument that proof of work validation (which is currently used in Bitcoin and Ethereum) is making our environmental conditions from bad to worse. It is one of the hard-to-swallow argument I have heard since bitcoin uses less than 0.1% of global energy. Anyways, but in proof of stake validation, the network is secured by staking ETH. There will be no energy costs and there will be less environmental impacts. Energy consumption will be reduced by 95%. So to sum up, it will be more energy efficient, more secure. Happy news right? There are also another myths spreading around regarding the reduction in transaction fees once the merge happens. FYI – that’s not the case. We will come to these kind of silly rumours in the later part of the article.

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Benefits of the Merge
  • Power consumption will be reduced by 95%
  • Ethereum will become ESG (environmental, social, governance) complaint, so there is a great possibility for massive institutional adoption.
  • Triple havening (we will discuss it later)
  • It will be more secure and hard to attack. Since the validators are staking their Ethereum to securing the network, it will give the blockchain much higher economic security.
Now let’s talk about triple havening or Economics of ETH.

Every year, 1.5% more BTC and 4.3% more ETH comes to market as an incentive for proof of work miners. But after the merge, for Ethereum, that doesn’t happen. Usually in Bitcoin to prevent inflation, block rewards for miners cut half every 4 years. After merge, ETH issuance will be reduced from 4.3% to 0.4%. That is as effective as three Bitcoin havening combined and now you know why this is called triple havening.

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 Common myths and misconception related to Ethereum merge
  • After the Ethereum merge, a ton of ETH staked for merge is getting unlocked – I am not getting in depth but this is not true!
  • Transaction fees in Ethereum blockchain will be reduced – again not true, it is possible in future after Sharding. Again, this is a vast topic, maybe we will discuss about it in another time.
  • There will be no separate ETH 2.0 token.
  • Actual Ethereum merge is determined by developers – not true, it will be decided by the blocks rather than Devs (developers).

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Actually, this transition called merge is one of the many steps to make ETH more scalable and usable. This so one of the revolutionary thing happening in cryptoverse. Think of a situation where the engine of a car is replaced from gas engine to electric while the car is running, without stopping it. Now you can understand why this took 7 long years and how hard the developers are working for achieving this massive goal. ETH have many test nets (Ropsten, Sepolia, Goerli), where developers have been testing this without real world consequences. This is the biggest thing in crypto since Bitcoin. How will it affect the price of ETH? Well, now Ethereum is undoubtedly one of the high-return-generating investment which have ESG compliance. But we have to take in consideration, the macroeconomics happening around us. I am not a financial advisor, so I am keeping my perspective with myself. For now, let’s forget money and enjoy the tech. But this article is to make you aware that what we are witnessing is one of the greatest experiment cryptoverse have ever gone through. Let’s wait and see what the future holds.

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