What is this merge everyone is talking about? Ethereum is transitioning from a proof-of-work protocol (literally hardware machines solving puzzles to secure the network) to a proof-of-stake protocol (putting collateral at stake to secure the network)
Why is proof-of-stake important? There are a few reasons but I’d say the most important is that it will then consume less energy. Ethereum’s power consumption is currently equivalent to that of Finland. Its total energy consumption is ~112 TWh/year, post-merge it would be closer to 0.01 TWh/year or a 99.95% reduction. The other major impetus is more decentralization.
Will PoS make Ethereum more decentralized? This is up for debate. Ethereum would say yes because it literally takes a lot of money & effort & skill to run physical mining machines, more people theoretically should be able to run nodes if you lower the barrier to entry.
How does The Merge technically work? Since Dec 2020, something called the Beacon Chain (a separate blockchain to Ethereum’s mainnet) was running in parallel using PoS (no miners!). The Merge, is the merging of the Beacon Chain with Ethereum's mainnet such that transactions and smart contracts are executed on Ethereum's main chain, but the consensus layer becomes the Beacon Chain.
Why does the consensus algorithm matter again? Ethereum, like all blockchains, is meant to be a decentralized, trustless, immutable system. If you cannot achieve/incentivize sufficient decentralization via the consensus algorithm to have a trustless, immutable system, there’s no point.
When is this supposed to happen? So here’s why you’ve probably heard jokes about this. Technically, Vitalik seeded the idea of the merge as early as ETH’s initial token sale (2014). Clearly, it’s been a while. After many a testnets (including Kiln, Kintsugi, Ropsten, Sepolia) and the remaining Georli, the soft expectations for the merge are Q3/Q4 2022.
Can I withdraw staked Ethereum post-merge? No! Withdrawals on staked ETH are planned for the Shanghai upgrade, which is the next upgrade (and not the same upgrade) as The Merge.
Will gas fees be less post-merge/ will Ethereum be more scalable? First, when people ask this question, they're usually asking the same question. And the answer is no! Gas fees come from demand on block space. Blocks on the Beacon Chain are produced ever so slightly faster (~10%) but this should make an insignificant difference to users in terms of gas fees because it is a minor change to block space. Sharding is a major upgrade that would make Ethereum more scalable, but sharding is not part of The Merge.
Ethereum faces 3 major challenges: environmental friendliness (the impetus for The Merge), security which comes from decentralization (another impetus for The Merge), and scalability (outside the scope of The Merge).
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