The "merge" is intended to move the Ethereum blockchain from the current proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model that is supposed to be faster, more secure, and more energy efficient. But transitioning the second largest blockchain from one system to another is an incredibly complex, multi-step process. It's important that every decision is thoroughly vetted. We'll walk you through the rationale and the various stages leading up to the new chapter of the protocol.
What is proof-of-stake and why is it necessary?
Unlike Proof-of-Work, which requires miners to compete for rewards based on the amount of computing power they can acquire, the Proof-of-Stake mechanism randomly selects validators based on the total amount and time their Ether (ETH) currency has been used.
Unlike proof-of-work, PoS validators do not need to mine blocks to maintain the network. Instead, they must create new blocks when prompted and validate others when not. Once a participant validates the last transaction block, other participants can confirm that the block is valid. When there are enough confirmations, the network adds a new block. Rewards are then distributed in Ether, the currency of the blockchain, by the network in proportion to each validator's effort. However, to incentivize good behavior, there are also penalties (slashing) that can cause validators to lose a portion of their ETH stake if they go offline (fail to validate) or confirm malicious (bad) transactions.
Despite the high level of technical knowledge and experience required to become a validator, anyone can join if they meet the minimum requirement of 32 ETH. People who cannot meet the minimum requirement can still contribute by depositing Ether into a pool (managed by a third party) and receive a portion of the rewards.
While the proof-of-work method is reliable and secure, the proof-of-stake method offers the following advantages, among others:
- No need for advanced and expensive hardware such as mining rigs.
- According to the Ethereum Foundation, energy is used much more efficiently
- Less risk of network centralization, which is a barrier to network security
The history of Ethereum Merge
As can be seen from his early and later writings, Ethereum co-founder Vitalik Buterin is a long-time proponent of the proof-of-stake consensus mechanism. Compared to Ethereum's current resource-intensive PoW governance system, PoS is expected to reduce the network's energy consumption by at least 99.95%.
It will also pave the way for Shard Chains in 2023, which are expected to eliminate data congestion and high gas (transaction) fees, and support the next generation of Layer 2 scaling systems. Shard chains provide additional, cheaper storage layers for applications and rollups to store data, according to the Ethereum Foundation.
Unlike ERC standards or traditional companies that enforce regulations from the top down, any major changes to the core protocol require consensus from the global community of nodes.
Because of the process all Ethereum updates and decisions go through, what some critics call undue delays is actually a painstaking and carefully implemented consolidation of the network through steady, incremental upgrades and forks in several core elements: the beacon chain, the merge, and the shard chain. Each of these elements relies on each other to achieve Ethereum's vision of greater scalability, security, and sustainability.
At this point, Buterin said the Merge will take place in August. At that time, the Beacon Chain (the component that controls PoS) will mark its official transition from proof-of-work to proof-of-stake.
The role of the Beacon Chain and the Merge.
In order to increase the number of validators and process transactions with PoS, the Ethereum mainnet (which still uses Proof-of-Work) will need to merge with the Beacon Chain (also known as the consensus layer).
The Beacon Chain (which runs in parallel with the mainnet or live blockchain version), shipped on December 1, 2020 at 12pm UTC and currently has over 375,000 active validators, is the component responsible for controlling Proof-of-Work.
It is also critical to Ethereum's preparation for the next multi-phase upgrade to Shard Chains, which will expand the network's capacity to scale and store data. Although the original plan was to work on Shard Chains before the merge, this has changed due to the accelerated growth of Layer 2 scaling systems such as Arbitrum, Optimism and Loopring. As a result, most of the Ethereum community saw merge and the transition to proof-of-stake as a higher priority.
It is expected that the role of the Beacon Chain will change over time, but it will largely coordinate the network of shards and stakers. Since the Beacon Chain cannot execute smart contracts or manage accounts, the merger with the mainnet will bring this capability into the proof-of-stake ecosystem.
Unlike the DAO hardfork in 2016 (which occurred after 3.6 million ETH were stolen in the DAO hack, resulting in the creation of a separate blockchain called Ethereum Classic), Ethereum will persist as a single network after the merge. Essentially, the entire Ethereum PoW chain will become the Ethereum PoS chain. The merge will not impact Ethereum's data layer, so no transactions will be lost during this transition. However, since mining will no longer be required, miners will likely use their assets and contribute to the validation of the Ethereum mainnet.
Timeline for Ethereum updates and forks:
Although it can be a lengthy process given Ethereum's many moving parts and market impact, these software upgrades require rigorous testing by the community and core developers to address any bugs or vulnerabilities. Notable tests, upgrades and forks since the launch of Beacon Chain as part of the transition to proof-of-stake include:
'London' hard fork (August 5, 2021):
Following the emergence of the Beacon Chain, the 'London' hard fork has been instrumental in shaping the way miners interact with and profit from Ethereum through various improvements such as EIP-1559. In addition to lowering fees, another drastic change to miners' financial incentives is the "difficulty bomb," which forces proof-of-work consensus to stop producing blocks, making mining unprofitable. EIP-3554 included in the London Hard Fork delayed the time bomb until December 2021, but this was later extended by several months with the Arrow-Glacier network upgrade (see below).
For an overview of EIP proposals related to the London Hard Fork, see Ethereum Cat Herders' Medium account.
Altair Upgrade (October 27, 2021):
As the first planned upgrade for the Beacon Chain, the Altair upgrade brought no changes to Ethereum front-end users, but required node operators to upgrade their clients. Nodes that do not upgrade risk being unable to participate in the network after the merge and may have to pay penalty fees.
Arrow Glacier (Dec. 9, 2021):
The Arrow Glacier network upgrade pushed back the "difficulty bomb" date by several months. This was the only change as part of the upgrade.
Ethereum merges with Kiln test network (March 16, 2022):
In mid-March, Ethereum reached a major milestone with the merger of the Klin test network. This involved merging a proof-of-work execution layer with a proof-of-stake beacon chain. While the merge was largely successful, developer Tim Beiko found that one client was not producing blocks as expected.
Mainnet Shadow Forks (as of April 12, 2022):
A shadow fork is essentially a test run for the merge. Without actually affecting the network, it simulates what the transition from PoW to PoS would look like by testing it on a small number of network nodes. After running shadow forks on several test networks, Ethereum developers began testing on Ethereum's mainnet. Mainnet shadow forks, which simulate the merge on Ethereum's high-traffic primary network, test how the merge would work under the most realistic conditions possible.
According to Parithosh Jayanthi, a developer at the Ethereum Foundation, the Kiln Merge testnet was designed to allow the community to "practice running their nodes, deploying contracts, testing infrastructure, etc.," while the Mainnet Shadow Fork goes a step further to test the network under stress. According to Van der Wijden, this was a historic event and critical to the timing of the final merger.
Once the Shadow Fork went live, the development team noticed some issues with Ethereum-based software system provider Nethermind and Hyperledger Besu, a Java-based open source Ethereum client.
In total, five successful Mainnet shadow forks through April and May 2022 (with more planned) have made Ethereum developers optimistic that the real merge may finally be just around the corner.
More details on Ethereum's history and the various milestones leading up to the Merge can be found here.
What happens after the merge?
Essentially, the goal of the Merge is to accelerate the transition from Proof-of-Work to Proof-of-Stake. To speed up the transition, developers are working to reduce features that could cause delays and temporarily limit the ability to take off deployed ETH once the merge is complete. However, these issues will likely be fixed in a post-merge "cleanup" upgrade.
Shard Chains:
While the merge will not immediately resolve the scalability issues, it will help prepare the network for the Ethereum version of the lower-level shard chains, which will rely on a fully functional PoS network to operate. By distributing the network's data load across 64 blockchains, Shard Chains provide additional, lower-cost layers for applications and rollups to store data. They also allow layer 2 systems to offer low transaction fees while benefiting from the security of the Ethereum mainnet.
How to stay up to date on Merge and Ethereum:
Below is a list of key resources on Merge, the Beacon Chain, and the state of Ethereum.
- Tim Beiko: AllCoreDev's Updates.
- Mega-merge resource list compiled by Tim Beiko, Trent Vanepps, and Mario Havel.
- Ethereum Foundation Research and Development Blog
- CoinDesk's Valid Points Newsletter.