Original title: "Everything You Need to Know About the Merge" Original author: David Hoffman, Bankless joint creation Original source: Bankless Newsletter Original compilation: 0x711, 0x214, BlockBeats

Mergers are confusing, so let's start from the beginning and explain one of the most important events in cryptocurrency history in simple terms.

1. What is "the Merge"?

The "merge" is the name of the event in which the Ethereum blockchain transitioned from using a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism.

It's called a "merge" because it's the merging of two separate blockchains that are currently running in parallel. The ethereum mainnet is being “merged” with a special-purpose blockchain called the “beacon chain.”

The Beacon Chain launched on December 1, 2020, with the sole purpose of "becoming a proof-of-stake (PoS) blockchain."

There are no transactions, no tokens or DeFi applications on the beacon chain. It is an "empty chain", just to be a blockchain running the PoS consensus mechanism.

Because the beacon chain is an "empty chain", it can be merged with the Ethereum blockchain and replace Ethereum's PoW consensus mechanism without worrying about any other variables.

Once the two chains are merged, Ethereum's PoW verification will be replaced by a brand new PoS consensus mechanism.

2. Why is "merger" so popular?

The merger is considered one of the most important events in the history of cryptocurrencies since the birth of Bitcoin's "genesis block". There are many reasons for this.

First, no blockchain has undergone such a major change in the history of cryptocurrencies.

It is very rare to change the operating mechanism of the blockchain, not to mention that, except for Ethereum, no blockchain has made such a major change after it has established a huge on-chain economy.

Today, the market value of ETH assets is 203 billion U.S. dollars (previously it reached 550 billion U.S. dollars), and the value based on its network is hundreds of millions. Ethereum has by far the strongest and most active economic ecosystem in cryptocurrency, and the security of all these economic activities will change from PoW-based to PoS-based.

So the stakes are huge if you get it wrong. This is one of the main reasons why the merge took so long, there was a lot of testing and polishing involved.

3. How will the merger affect ETH?

The merger will have a huge impact on the ETH economy, especially for investors.

The merger dramatically changes the ETH economy in two ways: by reducing the issuance of ETH, and by making ETH a native yield asset.

Reduce the issuance of ETH

The merger will reduce the ETH annual inflation rate from 4.3% to 0.43%.

This is because the PoS consensus mechanism will fundamentally improve efficiency. PoS aims to provide the highest level of blockchain security at the lowest cost. These cost savings benefit ETH by reducing the amount of ETH issued to maintain security.

PoW is expensive and requires significant resource overhead to reward miners for their services.

In contrast, the cost of securing PoS is simply the opportunity cost of capital and does not represent any commodity or tangible cost in the real world. Unlike PoW, PoS does not need to issue a large number of Tokens to pay security fees. Therefore, these lower security costs make the PoS consensus mechanism more effective.

Due to the reduced need to pay PoW miners, Ethereum was able to reduce the annual ETH issuance from 4.3% to 0.43%. A reduction in new ETH issuance is generally considered bullish.

This is because PoW miners immediately sell most of the rewards they receive, and over time, the sold portion accounts for close to 90+% of the total mining output.

With PoS, ETH will be reduced by more than 90%, and the overhead cost of being a PoS verifier will basically be reduced to zero.

Proponents of PoW believe that the costly maintenance of PoW blockchain is only a feature of the PoW consensus mechanism, not a defect. These costs, they argue, prevent centralization by creating churn in asset holdings, as this forces sellers to pay PoW miners.While PoW may indeed ensure decentralization of assets, it also creates centralization of security。

4. Why is there deflation in the merged ETH?

Almost exactly a year ago, on August 5, 2021, Ethereum introduced EIP-1559, an upgrade that changed the way Ethereum's transaction fees are managed. Instead of simply paying all transaction fees to miners, most of them are burned.

There are many reasons for this.

After the merger, ETH production will be reduced by at least 90%, and the proportion of ETH destroyed in each block will increase accordingly.

When the Gas fee of Ethereum is greater than or equal to 7gwei, the speed at which ETH is destroyed will be greater than the speed at which ETH is issued, reducing the total supply of ETH.

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clickhereSimulate the circulation of ETH after the merger.

5. Will the "merger" reduce the Gas fee of Ethereum?

Won't.

This is a misunderstanding caused by confusing the two concepts of "Ethereum 2.0" (ETH 2.0) and "merger".

ETH 2.0 is the name of the future state of Ethereum, which is no longer used by the Ethereum community. ETH 2.0 refers to the future version of Ethereum that will enable PoS and sharding.

There was a time in Ethereum's history when it was thought that these two updates would happen at the same time, PoS and sharding. As the R&D work progressed, the developers realized they could separate these updates.

However, the term "ETH 2.0" has always existed.

Sharding will reduce the gas fee of Ethereum on L1, but for end users, the realization of really low gas fee or even zero gas fee will eventually happen on L2, such as Optimism, Arbitrum, Polygon, StarkNet, zkSync or others L2.

When the Ethereum L1 Gas fee is reduced, the L2 Gas fee will be reduced by a larger order of magnitude. The solution to Ethereum Gas fees has never been to reduce fees on L1, but to migrate users to L2, where they can enjoy high performance and low price transaction experience.

6. Will the merger increase the transaction speed of Ethereum?

This is actually similar to the previous question, just phrased differently.

The transaction volume and transaction costs in the encrypted network will affect its supply and demand changes.

After the merger, Ethereum's block time (how often blocks are added to the Ethereum network) did improve slightly, from an average block time of 13.6 seconds to 12 seconds.

This means that the transaction capacity has increased by 12%, and the Gas cost will be reduced by 12%.

But this is an insignificant amount and should not be considered a "gas fee reduction".

7. Will the merger reduce Ethereum’s energy consumption?

Yes. will be greatly reduced. This is one of the main results of The Merge and PoS.

After the merger, the energy consumption of Ethereum will be reduced by about 99.95% compared with the current one.

PoS secures the blockchain with capital rather than energy. So the energy required to keep Ethereum running post-merge is comparable to basic computer usage: like what you're doing right now, like reading this article, sending a tweet, downloading a movie to your hard drive, etc.

With PoS enabled, the energy cost of Ethereum is just to run a node - about 2.6 MWh per year. That's about 1,300 times less than consumed by the entire US gaming industry.

Ethereum will actually be the greenest financial system in the world.

Banking and finance still require people to drive around in gas cars and turn on lights in buildings, which is no longer needed in a crypto-driven world.

Maybe Wall Street should go green by using Ethereum ;).

8. Will Ethereum stakers sell their ETH after the merger?

No, they won't.

After the merger of Ethereum, the pledged ETH cannot be withdrawn immediately. This is to keep things as simple as possible, after all this is the largest and most complex upgrade Ethereum has ever experienced in the industry.

Withdrawing staked ETH is expected to be unlocked within 6-12 months of the merger.

So stakers will sell ETH immediately after unlocking?

Maybe, but there are still limitations. There is a withdrawal/deposit queue that limits how quickly people can stake and unstake. This is again a mechanism to keep the chain stable, so that the rapid fluctuations of the Ethereum application layer will not affect the security of the chain.

The deposit/withdrawal bottleneck is limited to X/ETH per day, where X is equal to:

Number of validators / 65536, rounded down to the nearest integer.

herehereandhereRead about it.

Currently, there are 433,916 Ethereum validators on the Beacon Chain. To find how many validators there are per epoch, divide it by 65,536 and round down to the nearest integer.

433,916 (total validators) / 65,536 6 validators per epoch

So the activation/deactivation amount is 6 validators per epoch. An Ethereum epoch is 6.4 minutes, 225 epochs in 24 hours.

Therefore, the current validator activation/deactivation rate is 1,350 per day.

225 epoch*6=1350 epochs/day

Each validator has 32 ETH, so a maximum of 43,200 ETH (32*1350) can be unlocked per day.

Also, the APY of being an ETH staker will increase post-merger since ETH staking also charges transaction fees.

This is expected to increase the ETH yield from 4.2% to 5%+, and even higher when Gas consumption is high.

9. Why 32ETH

Why does it take 32 ETH to run a node and not 31, 33 or any other number? The answer is that the more nodes there are, the more total messaging between nodes. If a node requires less ETH, more nodes can be brought online. While this is good for decentralization, it limits Ethereum scalability.

Choosing 32ETH is a compromise solution, which also comes from a square number, 2 to the 5th power.

Since node messaging is exponential, reducing validator node requirements from 32 ETH to 16 ETH will increase messaging across all nodes by a factor of 4. 32 was chosen as the minimum amount of ETH staked to also yield "finality" within 768 seconds or "2 epochs".

32 Is ETH permanent?

uncertain! It can of course be modified to 16 or lower with improved consumer hardware, message compression, and better signature aggregation.

10. PoS is not on-chain governance

A common objection (mainly from the Bitcoin camp) is that PoS is equivalent to the "fiat system" we were originally trying to get rid of.

What they mean is that whoever controls the capital controls the power.

This is a frustratingly false stance, and one that many of the people who often espouse it may be spreading maliciously in order to discredit any consensus mechanism outside of Bitcoin.

The role of an ETH validator is exactly the same as that of a PoW miner. This is a 1:1 comparison.

ETH holders do not have governance rights over Ethereum. Like Bitcoin, this power is held by non-validating node operators, the "community".

Ironically, these camps promote PoS as a scheme to "make the rich richer" when the indisputable truth is that,PoW Mining Facility Delivers Higher ROI for Wealthier Capital。

TL；DR

PoS Ethereum with ETH native yield is the most democratized consensus mechanism as it offers rewards in the same proportion as 32, 320, 3200 or 32,000 ETH.

They all receive the same yield of around 5%.

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