Ethereum Completes “Merge” Upgrade, Transforming Blockchain Forever

The long-awaited Ethereum “Merge” update was completed just before midnight on Wednesday and the blockchain has switched from its “proof-of-work” validation system to a “proof-of-stake” system under the hood.

From the perspective of users and developers, the merger changed absolutely nothing, but for current Ethereum miners, those who create new crypto tokens, millions of dollars of their old equipment will no longer work on the blockchain.

Proof of work is a validation system first developed by bitcoin, an energy-intensive process that uses multiple machines to complete complex puzzles to secure transactions on the blockchain. It will be replaced with proof of stake, which has users on the blockchain “stake”, or unlock, their tokens, proving they have a stake in the blockchain to secure transactions on the chain.

The switch, known as “the Merge”, has been planned for years by Ethereum’s core development team, and will reduce the total energy used by the blockchain by over 99%. It is also part of a long-term plan that will allow the developers to add even more features such as greater scalability and higher security.

It’s called the merger because for some time now, Ethereum has been running a fork of itself successfully running a proof-of-stake system that “merged” with the mainnet and replaced proof of work. This was much like replacing the engine of an airplane with another one while it was still flying.

The event itself took place around 11:42 PM PDT on Wednesday and reached its finale about 15 minutes later when the first block was created under the new system. Throughout the endeavor, crowds of Ethereum users, developers and others flocked to the internet to watch the event online at viewing parties, with one having more than 41,000 people at its peak.

“This is the first step in Ethereum’s great journey towards being a very mature system, and there are still steps to go,” Ethereum co-founder and creator Vitalik Buterin said after the update during a YouTube viewing party. “We still have to scale, we still have to fix privacy, we still have to make things safe for regular users, we all have to work hard and do our part.”

The actual process of the merger was seamless and met with fanfare as viewers waited for the first block to be produced, and by midnight a new era for Ethereum had begun.

And we finished!

Glad to merge all. This is a big moment for the Ethereum ecosystem. Everyone who helped make the merger happen should feel very proud today.

— vitalik.eth (@VitalikButerin) 15 September 2022

One of the benefits of cryptocurrency staking is that it generates rewards for being part of protecting transactions on the network. Under the Ethereum staking model, there is a relatively high barrier to entry, requiring 32 ETH, or around $51,000. Now that the merger is complete, major exchanges will begin offering Ethereum staking services that allow users to stake smaller amounts of ETH for rewards, including Coinbase, Kraken and Binance.

Although it is possible to stake ETH now, it will not be possible to redeem it until a later upgrade of the Ethereum blockchain, called Shanghai, which is expected to happen in early 2023.

One of the biggest benefits of the transition from proof-of-work to proof-of-stake is the huge reduction in energy use of the blockchain. Before the merger, Digiconomist estimated that Ethereum consumed as much annual energy on average as the entire country of Chile. That’s because proof of work is an energy-intensive process, and it has drawn the attention of regulators over energy sustainability and environmental concerns.

Ethereum mining is a multi-billion dollar industry, and the merger has displaced as many as 1 million people with over $10 billion worth of mining hardware. As a consequence, Ethermine, the largest Ethereum mining pool with computational power, has shut down its Ethereum mining servers, according to a announcement. In a few days, unpaid balances will go out to miners. The service has targeted miners against other proof-of-work tokens and launched a staking service.

Much Ethereum mining is done by high-end graphics cards, which caused a shortage of graphics processing units and high retail prices – something the merger has helped alleviate. However, it means that miners who no longer need their GPU-powered computers can either try to sell them, flood the market, or dump them, generating massive amounts of e-waste.

Alternatively, miners can switch their rigs to an older proof-of-work fork of Ethereum known as Ethereum Classic or another proof-of-work blockchain to continue trying to make money mining cryptocurrency.

Another potential place miners could go is to EthereumPoW, a proof-of-work hard fork expected to launch within 24 hours, according to the project. The project is the brainchild of Chinese cryptominer Chandler Gao, who announced the idea in July after saying the merger would put miners out of business.

“ETHW mainnet will happen within 24 hours of the merge,” it @EthereumPow Twitter account posted on Tuesday. “The exact time will be announced 1 hour before launch with a countdown timer, and everything including final code, binaries, configuration files, node information, RPC, explorer, etc. will be released when the time is up.”

Today’s update puts Ethereum on a path for further upgrades in the future that will allow it to scale up even more in the future. Currently, Ethereum can only handle 30 transactions per second, leading to congestion, delays and high fees. To manage this, further scaling is assisted by Layer-2 blockchains that are built on top of the network.

The merger has opened up possibilities for a future upgrade called Sharding, which will support an additional data layer and interoperate with Layer-2 blockchain networks to enable throughput of up to 100,000 transactions per second.

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