If you want more cryptocurrency analysis including full-length research reports, trading signals, and social media sentiment analysis, use the code "Publish0x" when subscribing to CryptoEQ.io to make your first month of CryptoEQ just $10! Or just click the button above!
So, what is this big upgrade? What is “The Merge”?
The Merge is the term used for when Ethereum switches from Proof-of-Work (PoW) to a Proof-of-Stake (PoS) blockchain. This is slated to occur in Q2 2022 and bring with it many benefits that were not previously possible with PoW.
PoS removes the energy consumption often cited in the mainstream media. While PoW is not inherently a bad thing, it is inarguable that the world is highly critical of energy consumption and now, with the transition to PoS, Ethereum will have eliminated this one enormous criticism. Estimates from Ethereum core developers hypothesize that Ethereum’s energy use will drop by up to ~99%. Without the need for so much physical mining hardware and infrastructure, Ethereum can become a more energy-efficient, geographically distributed, and nimble blockchain.
Additionally, PoS is a predecessor for sharding, another critical Ethereum protocol change that will separate the chain into many concurrent threads (discussed more below). Finally, the PoS upgrade will reduce Ethereum’s inflation rate from ~3.5% to near zero.
All of these big changes are being made in an effort to provide increased scalability for the Ethereum chain, which since 2020 has regularly experienced periods of congestion and high network fees. There are two ways a monolithic blockchain (a blockchain that provides its own security, executes its own transactions, and maintains its own data availability) can scale: increase capacity at the base layer (on-chain) or move transactions to a second layer (off-chain).
On-chain scaling techniques are upgrades made to a blockchain’s base layer to improve scalability. Ethereum’s long-term, on-chain scaling solution is sharding, which actually splits the base layer into 64 chains with shared security ensured by the Beacon Chain.
Off-chain scaling refers to scaling solutions that use external execution layers (Layer 2s) rather than the base layer. These Layer 2s, or “L2s”, are secondary layers that sit on top of the base layer, inheriting their mainchain’s security, while providing more transactional capacity for the blockchain overall.
Ethereum is pursuing both off-chain and on-chain scaling strategies.
Ethereum 2.0 is the response to these challenges. It is a massive upgrade to the entire Ethereum ecosystem to accommodate continued growth and an increasing workload, to consume less electric power in its verification process, and to be more secure from attacks. That is, the Ethereum upgrade will make the network more scalable, sustainable, and secure. That is why Ethereum 2.0 is coming.
Any human enterprise which is highly successful early on will quickly have to address how to do more to keep up with demand. This is a good problem to have, but not an easy one to solve because scaling up often challenges the core values that made the enterprise successful.