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Now that NFT season is over for the most part and I am holding my bag of cartoon profile photos that probably will never have any use (whoops!), I thought I would take the time to deep dive into different parts of the Ethereum ecosystem. I’m still interested in the actual technology behind Eth and the different use cases that could come of it (currently learning about DeSci) so it makes sense for me to have a better understanding of how things actually work instead of just riding along with rest of crypto twitter saying gm to each other every second of the day.
I’ve also had a lot of time on my night shifts to get through my article backlog and feel like writing to learn seems like a good mindset to be in. Lots of crypto stuff can either be overly technical or way to vague so putting what I learn into my own words is a good reinforcing mechanism to make sure that I really know what I’m reading (this is probably a good idea to do for anything I’m trying to learn but let’s start here).
So today, I want to talk about The Merge, which first of all is a dope name so props to whoever came up with that. It’s also the thing that I hear about all of the time be it on twitter or podcasts or articles. Everyone has been awaiting The Merge and it keeps getting delayed. Let’s talk about what it is, why it’s important, and will it actual happen soon.
Proof of Work vs Proof of Stake
To understand The Merge we first need to talk about proof of work (PoW) vs proof of stake (PoS).
There are lot of resources and articles that go into the details on the difference between these two models and why one is better than the other and because I don’t want this post to go on forever I’m going to simplify it a bit so that you can understand the gist of what they each entail.
The goal of both models is to create a way to validate transactions on the blockchain. Proof of work approaches this problem by presenting complex math problems to miners who try to solve them. Whoever is able to solve the problem gets to mine that specific transaction and in return they get the miner’s fee. These problems take a lot of computational power to solve i.e. they take up a lot of energy which is one of the reasons people say that crypto isn’t the best for the environment. The other downside of a PoW model is that because the problems take lots of resources to actually solve, we see a few big companies that have the capital to devote to solving these problems taking over. This means that a few players control all of the mining which not only creates single points of failure but also goes against the thesis of decentralization that crypto is known for.
Proof of stake works differently. In a PoS model, validators stake their eth and based on amount and time staked are randomly chosen to validate a block on the blockchain. There is some more technical stuff into how this actually happens and what it takes to be a validator but essentially if you are a validator and confirm a transaction you get a reward in eth. After a block is validated, others will attest or confirm that block. You need 32 eth to become a validator but if you don’t have that then there are pools you can join to get a percentage cut of being a validator. One of the biggest draws to a PoS model is that it gets away from the energy consumption issues in a PoW model and also adds a layer of randomization into who gets to be a validator (so that it’s not just the miner with the most resources who wins every block).
We won’t go into the PoW vs PoS debate here but in terms of The Merge, the goal is to go from PoW to PoS.
Now that we have the basics of PoW and PoS and we know that one of the goals of The Merge is to move to a PoS model, let’s talk about how the heck that is actually going to be done. The Merge has three parts: Beacon Chain, Merging Mainnet and Beacon Chain, and Sharding.
Beacon Chain is actually already live and has been since 2020. It’s a mirror chain to Mainnet, but it operates on a PoS model. As a consumer you can stake your eth right now to become a validator on Beacon Chain and get rewards for it. We’re not using Beacon Chain to run everything that we see on Mainnet right now but it serves as a validation tool to test and show that PoS is working and to figure out kinks and bugs before moving the entire system to a PoS model. Think of it as a test run that moves along with Mainnet while we are in this transition state.
The meat of the operation, the second step of The Merge is to actually merge Beacon Chain with Mainnet. This is the part of the process that has experienced several delays (and maybe will continue to experience delays) because they want to get it right. Lots of things depend on Mainnet running well and so merging it with Beacon Chain would mean that any bugs or errors could cause issues for any consumer or project running on eth. The stakes (pun intended) are high, so they want to get it right.
The other part of this is getting people to move away from PoW to PoS and staking their eth to become validators. To help with this, there is something called the difficulty bomb which is some code that will make the math problems required for PoW to become much harder and more computationally intensive. So much so that the energy and money needed to solve them won’t be worth the rewards you get from “winning” a problem and getting the mining rewards. The thought is that miners will stop pursuing PoW since it won’t be profitable anymore and instead switch to become validators in the new PoS model.
Sharding is the third part of the process and isn’t due until 2023 (for now). This will happen after we move to a PoS model and is actually the part that sounds most exciting to me.
Ethereum has struggled with network congestion and high gas fees in the past and sharding is supposed to help with that. It’s all a little vague (at least to me) right now, and I’m sure more details will be brought to light post merge when this becomes the main thing that everyone is focused on. I’m still trying to learn and comprehend what sharding means and what it will unlock so take this next bit with a grain of salt.
The goal of sharding will be to help with network congestion and gas fees and also investing into scaling layer 2 systems (which will also help with the congestion and gas fees). On top of this, sharding will help create subsets of the data that lives on Mainnet. This means that a validator can choose to only validate certain parts of the blockchain and won’t have to access all of the data in order to run a node to validate on. This increases scalability since you could potentially validate by using your computer or smartphone which also means that validation will be spread across more devices leading to, you guess it, more decentralization.
On top of this, sharding is supposed to help increase the number of transactions that can happen on the network per second which has always been one of the downsides of using Ethereum versus other networks such as Solana.
This is all still a ways away but it’s exciting to look ahead and see what is possible with Ethereum in just a few years time.
So that’s The Merge. It’s complicated with a lot of moving parts and that’s why it’s also been delayed many times and hasn’t happened yet. So when do we think it will actually happen? Well for now, everyone is saying that September 2022 is a possibility. We don’t know if that’s going to hold or if it will be delayed once again, only time will tell. The other big question in everyone’s head is also if The Merge is baked into the price of Eth right now. If it isn’t then we could see a big jump in price post Merge (whenever it happens) so people may be wanting to buy more Eth right now in anticipation of it. However, everyone already knows that it is happening so maybe the price is baked in? Who knows - maybe the best strategy is still to just DCA into Eth. Don’t ask me, I used to buy cartoon profile photos with my eth.
If you enjoyed this post, feel free to subscribe below or forward it to a friend you think you would like it. I’m just an internal medicine resident writing in my free time to keep me sane from the beast that is residency so any support is much appreciated!
With the amount of crypto web3 noise I feel like I have to keep reminding myself of the fundamentals
Thanks for sharing!